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Correlation between the use of derivatives products and the implementation of the monetary policy

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Author Info

  • Mircea CIOLPAN
  • Anduena FIRTAT

    (University of Craiova)

Abstract

In a developing and fluctuant world, derivatives help the investors to avoid risks and moreover to assume them when it is necesary. The trade of the derivatives contributes to the growth of liquidity of the assets’ market. For the banks, which traditionally avoid risks, this fact combined with low costs for communication and trading, lead to some potential risky investments. The materialization of monetary policy is based on the idea that the needs of the real economy are expressed through the bankimg system, and the changes of the monetary policy influence the evolution of the economy. In this way, the monetary authority has to promote a proper policy, which can lead to the achievement of its main objective – price stability. The use of derivatives made the central bank mission more difficult. The authorities have a difficult task in order to establish new methods, more powerful, for a better implementaton of the monetary policy. In a dynamic environment the equilibrium is not permanent; this is the reason why the central bank and the financial markets participants must prevent first, and then avoid the possible repairs.

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Bibliographic Info

Article provided by University of Craiova, Faculty of Economics and Business Administration in its journal Finance - Challenges of the Future.

Volume (Year): 1 (2008)
Issue (Month): 7 (May)
Pages: 203-210

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Handle: RePEc:aio:fpvfcf:v:1:y:2008:i:7:p:203-210

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Keywords: derivative; monetary policy; risk management; financial markets;

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