Finance: Recent Trends in Financial Market
Financial markets have experienced many changes during the last
two decades. Technological advances in computers and telecommunications, along
with the globalization of banking and commerce, have led to deregulation, and
this has increased competition throughout the world. The result is a much more
efficient, internationally linked market, but one that is far more complex than
existed a few years ago. While these developments have been largely positive, they
have also created problems for policy makers. At a recent conference, Board
Chairman, World Bank stated that modern financial markets expose national
economies to shocks from new and unexpected sources, and with little if any
lag. He went on to say that central banks must develop new ways to evaluate
and limit risks to the financial system. Large amounts of capital move quickly
around the world in response to changes in interest and exchange rates, and
these movements can disrupt local institutions and economies.
globalization has come the need for greater cooperation among regulators at the
international level. Various committees are currently working to improve
coordination, but the task is not easy.
that complicate coordination include:
(i) the differing structures among nations
banking and securities industries,
(ii) the trend in Europe toward financial
(iii) a reluctance on the part of individual
countries to give up control over their national monetary policies.
regulators are unanimous about the need to close the gaps in the supervision of
important trend in recent years has been the increased use of derivatives. A derivative is any
security whose value is derived from
the price of some other underlying asset. An option to buy IBM stock is a
derivative, as is a contract to buy Indian rupees six months from now. The
value of the IBM option depends on the price of IBMs stock, and the value of
the Indian rupees future depends on the exchange rate between Indian rupees
and سوق الاردن المركزي dollars. The market for derivatives has grown faster than any other market
in recent years, providing corporations with new opportunities but also
exposing them to new risks.
can be used either to reduce risks or to speculate. Suppose an importers net
income tends to fall whenever the dollar falls relative to the Indian rupees.
That company could reduce its risk by purchasing derivatives that increase in
value whenever the dollar declines. This would be called a hedging operation, and its purpose is
to reduce risk exposure. Speculation, on the other hand, is done in the hope of
high returns, but it raises risk exposure. For example, Procter & Gamble
recently disclosed that it lost $150 million on derivative investments, and
Orange County (California) went bankrupt as a result of its treasurers
speculation in derivatives.
size and complexity of derivatives transactions concern regulators, academics, and
members of Congress. Experts of International Finance noted that, in theory,
derivatives should allow companies to manage risk better, but that it is not
clear whether recent innovations have increased or decreased the inherent stability
of the financial system.