Are Financial Derivatives a Barrier to Investment Banks?
Are financial derivatives a barrier to investment banks?
Introduction
In recent decades, the development of financial derivatives is one of the most important and striking features among international financial markets (Lei, D.2009). Meanwhile, international investment banks gradually increase their utilization of financial derivatives in investment management strategy. Business related to derivatives has also become the core competitive ability to investment banks. With the development of the international financial markets, the range for investment banks using financial derivatives has almost cover all current financial tools. However, with the outbreak of the financial crisis, many investment banks suffered fatal blow, financial derivatives then became the blame objective by some authorities and the public. For investment Banks, finding out the risk exposure of financial derivatives and implement strict supervision, appears to be an efficient way to achieve their financial goals. This essay will first introduces the relevant theoretical knowledge of financial derivatives and its current develope situation in investment banks, and then based on the analysis of the operations by looking at some examples, reveal the potential high risk of financial derivatives during the process. At last, whether financial derivatives should be banned as a barrier to the investment banks ' development or could be issued and managed will be discussed.
Financial derivatives and their markets
2.1 The concept of financial derivatives
Financial derivatives, refers to single and combinations of financial contracts which derived from the original financial tools. A definition is presented by Gregory (2010), who asserts that derivative contracts represent agreements, either to make payments or to buy or sell an underlying contract at a future time. Therefore, an outstanding characteristic of financial derivatives refers to the
Introduction
In recent decades, the development of financial derivatives is one of the most important and striking features among international financial markets (Lei, D.2009). Meanwhile, international investment banks gradually increase their utilization of financial derivatives in investment management strategy. Business related to derivatives has also become the core competitive ability to investment banks. With the development of the international financial markets, the range for investment banks using financial derivatives has almost cover all current financial tools. However, with the outbreak of the financial crisis, many investment banks suffered fatal blow, financial derivatives then became the blame objective by some authorities and the public. For investment Banks, finding out the risk exposure of financial derivatives and implement strict supervision, appears to be an efficient way to achieve their financial goals. This essay will first introduces the relevant theoretical knowledge of financial derivatives and its current develope situation in investment banks, and then based on the analysis of the operations by looking at some examples, reveal the potential high risk of financial derivatives during the process. At last, whether financial derivatives should be banned as a barrier to the investment banks ' development or could be issued and managed will be discussed.
Financial derivatives and their markets
2.1 The concept of financial derivatives
Financial derivatives, refers to single and combinations of financial contracts which derived from the original financial tools. A definition is presented by Gregory (2010), who asserts that derivative contracts represent agreements, either to make payments or to buy or sell an underlying contract at a future time. Therefore, an outstanding characteristic of financial derivatives refers to the
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