1)Explain the swap agreement of gold commodity with an example.

2)Imagine yourself as a risk Avoider, 'in the scenario if Covid-19 you are exploring two alternatives of investment plans those are

a) Swap Contracts (Vanilla swaps)

b) Entering into options ( call or put) to hedge investment fir the upcoming period of 6 months. Explain and explore all the possible merits and demerits of these alternatives and give your final decision with proper justification.

Derivatives Market - Commodity Gold Gold prices are skyrocketing even at the times of COVID-19. Gold has long been considered one of the most precious metals, and its value has been used as the standard for many currencies (known as the gold standard) in history. Gold has been used as a symbol for purity, value, royalty, and particularly roles that combine these properties. It is used in international transactions. Gold consumption observed a sharp acceleration during the 1990s amidst liberalization of gold import policy, strong economic growth and favorable movements in gold prices. Gold is now being used as an alternative for dollar since its collapse (Turk and Rubino, 2008). Monetary and Non-Monetary demand for gold is steeply rising. It has been demanded by individual buyer, institutional buyer as well as he Countries too. There has been drastic increase in the prices of gold since 2001. Gold prices have been increased by 900% during last 10 years. Traditionally gold has been a safe investment option in India, but its role has changed with the time. Gold is now being traded and forecasted as a commodity (Greely & Currie, 2008). Gold has entered in to secular bull market, since than the prices are on rise. Gold unlike any other commodity has been constantly providing plenty yield to its investors. As in India, gold has been traditionally used in jewelry, but it was long thought as an invest option by ancestors also hedging financial risks. Krauth (2011) in his report has clearly mentioned that the demand for the gold will rise and will surpass $ 2500/oz in coming days. Weakness in financial market: gold is negatively correlated with the stock, bonds and real-estate. During any of the financial and non financial crisis investors like to invest in gold. The movement of gold price is explained in terms of a set of macroeconomic and financial variables (Aggarwal and Soenen, 1988, Ghosh et al. 2002, Mani and Vuyyuri, 2003). In a specific country, the gold market may be both supply driven due to ample domestic production or demand driven due to huge import demand. In countries like India, which depend completely on gold import are price-takers, relying upon London fixes of gold prices, entailing for an exogenous impact of gold price on physical gold demand. The domestic gold price is determined by global gold price, exchange rate, transaction cost, import duties and some arbitrage component. Demand from Central Bank: with dollar losing its value, Reserve bank of India and central banks of most of the developed countries started to increase their share of gold in the storage to prevent excessive. From the time global financial crisis got off, there seems to be a perceptible boom in gold prices. There has been increase in the demand of gold from central banks all over