Banking · Financial Derivatives and Governance

The derivatives market in India has seen exponential growth, primarily in the equity and currency segments, providing essential tools for price discovery and risk management. Consider the following statements regarding key market participants in derivatives: Statement I: Hedgers are participants who enter the derivatives market to reduce or eliminate an existing risk in the underlying asset, such as a bank using Interest Rate Swaps to manage the duration gap in its balance sheet. Statement II: Speculators take on risk by betting on future price movements to earn profits, and they provide the necessary liquidity to the market which allows hedgers to transfer their risks effectively. Statement III: Arbitrageurs seek to exploit price discrepancies of the same asset in different markets or between the cash and futures market, and their actions lead to the convergence of prices, enhancing market efficiency. Which of the above statements are correct?