Vol. 2, Issue 8, Part B (2016)

Abstract
The study determines the impact of derivative trading on real economic activity of India. Quarterly time series data for the period from 2000 (2) to 2016 (1) was sourced from RBI Hand book of Indian Economy. Result from the decomposition analysis and impulse response function provide support that derivatives markets do not have a significant impact on the level of real economic activity for the Indian economy. Further it is found that Interest rate exposure is not the most important factor promoting derivatives trading, and therefore there is little empirical evidence that derivatives have any significant impact on the effectiveness of monetary policy itself. The fact that derivatives markets do not have any definitive impact on the macro economy means that derivatives should not be seen as a threat to macroeconomic stability or systemic stability