Financial Engineering

The objective of an investment decision is to get a required rate of return with minimum risk. To achieve this objective, various instruments, practices, and strategies have been devised and developed in the recent past. With the opening of boundaries for international trade and business, world trade gained momentum in the last decade, the world has entered into a new phase of global integration and liberalization. The integration of capital markets worldwide has given rise to increased financial risk with the frequent changes in the interest rates, currency exchange rate, and stock prices. To overcome the risk arising out of these fluctuating variables and increased dependence of capital markets of one set of countries to the others, risk management practices have also been reshaped by inventing such instruments as can mitigate the risk element. These new popular instruments are known as financial derivatives which, not only reduce financial risk but also open new opportunities for high-risk takers.