Global Financial Markets, Derivative Securities, and Systemic Risks

The global use of derivative instruments has grown in importance, because they are less expensive tools for hedging risks and for investing in securities. Because several entities have incurred substantial losses in derivatives, leading to bankruptcy in a few cases, and because the size of the deriv...

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Bibliographic Details
Published in:Journal of risk and uncertainty 1996-05, Vol.12 (2/3), p.271-286
Main Author: SCHOLES, MYRON S.
Format: Article
Language:English
Subjects:
Business innovation
Business risks
Capital market
Corporations
Credit risk
Derivative contracts
Derivatives markets
Economic performance
Financial innovation
Financial institutions
Government bonds
Hedging
Investment
Investment risk
Risk
Systemic risk
Uncertainty
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Summary:The global use of derivative instruments has grown in importance, because they are less expensive tools for hedging risks and for investing in securities. Because several entities have incurred substantial losses in derivatives, leading to bankruptcy in a few cases, and because the size of the derivative market appears so large, legislators and regulators around the world, who have limited information about derivatives, fear that further possible bankruptcies pose a systemic risk to the economy. This fear is unwarranted. Affected entities will continue to make infrastructure investments to support their valuable derivative business, a more beneficial alternative to political solutions.
ISSN:0895-5646
1573-0476
DOI:10.1007/BF00055798