The rise of derivative market, Financial Management

The Rise of Derivative Market:

In the 1980s, the process of liberalization and deregulation of the financial markets gained momentum when the British and American leadership led what could perhaps be considered as the worldwide deregulatory movement. While the liberalization drive under the Reagan administration in the USA brought about major changes, London's pre-eminent position in the world's financial arena was further elevated by the "Big-Bang" of 1986, which allowed increased presence of foreign firms. This resulted in what is known as integration and the securitization of the world financial markets. The arrival of Information Technology (IT) facilitated the process of integration on an unprecedented scale. Cross-border activities in finance flourished and the access to different markets in the world increased manifold while transfer of resources from one market to another became rapid and almost cost free.

It was also at this juncture that trends in disintermediation manifested manifold compelling banks to create new products and services. The prescription of capital adequacy norms by the Bank for International Settlement (BIS) resulted in increased costs of loans to banks and as an off-shoot of this development, banks found securitization, an off-balance sheet activity, an attractive route to expand assets. With the integration of the financial markets and free mobility of capital, risks also multiplied and risk diversification came to occupy the center stage. This logically led to the evolution of risk hedging mechanisms, first in the forex markets and later in the other segments of financial service industry; and these have come to be known generally as ‘Derivatives'.

After emerging in the USA, the derivatives business expanded rapidly and flourished in the European markets. According to a recent estimate, the total value of derivatives issued world wide in April 2007 was over $300 trillion.

 

Posted Date: 9/10/2012 8:45:33 AM | Location : United States







Related Discussions:- The rise of derivative market, Assignment Help, Ask Question on The rise of derivative market, Get Answer, Expert's Help, The rise of derivative market Discussions

Write discussion on The rise of derivative market
Your posts are moderated
Related Questions
Q. What do you mean by Business Risk? Business risk is that portion of the unsystematic risk caused by the operating environment of the business. Business risk arises from the

We have seen earlier that there are callable bonds. This is a valuable feature for the issuers who consider that their stock is undervalued enough so that selling

Have mergers affected competition? A: Federal Reserve data depict that measured on the local level, where competition occurs; markets have in fact experienced more banking comp

Bond's potential returns are calculated using measures like Yield to Maturity (YTM) and cash flow yield. Both these measures are not free from s

explain participating budgeting and slow budgeting.

Aims of FSA The aim of FSA is to promote efficient, orderly and fair markets, and to help retail consumers to get a fair deal. In fact, FSA has set out its aims under three bro

Inventory T ur nover In the accounting, a measure of the number of times that the average amount of inventory on hand is sold within a given time of period. In the o

Cash management is about managing excess cash also. The response of management must depend on whether the surplus is large and how long it is likely to exist. If the balance is

You own three stocks: 1000 shares of Apple Computer, 10,000 shares of Cisco Systems, and 5000 shares of Goldman Sachs Group. The current share prices and expected returns of Apple,

Need to Widen and Deepen the Government Securities Market The importance of the Government Securities markets can be evaluated from three angles as follows: From the Gove