Financial Derivatives: Harnessing the Benefits and Containing the Dangers
AbstractFinancial derivatives have harmed or destroyed numerous financial firms, nonfinancial firms, and municipalities in 1994 and 1995. This paper discusses the dangers of derivatives and also their benefits. It then considers policies that will maintain the benefits while containing the risks. These include improving the accounting framework used to disclose derivatives transactions, increasing transparency between dealers and end-users, and reducing legal uncertainties between countries. This paper also argues that the government needs to make a concerted effort to acquire more information concerning the dangers that derivatives trading pose to the financial system. If such a study revealed that the systemic risks are too high, then remedial legislation regulating the safety and soundness of nonbank derivatives dealers would be required. Until such a study is conducted, the government should seek to improve the in-house risk management techniques used by major players in the derivatives market.
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Bibliographic InfoPaper provided by EconWPA in its series Macroeconomics with number 9812001.
Length: 25 pages
Date of creation: 02 Dec 1998
Date of revision:
Note: Type of Document - Acrobat PDF; prepared on IBM PC; to print on PostScript; pages: 25; figures: included
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Other versions of this item:
- Willem Thorbecke, 1995. "Financial Derivatives: Harnessing the Benefits and Containing the Dangers," Economics Working Paper Archive wp_145, Levy Economics Institute, The.
- E - Macroeconomics and Monetary Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-1999-02-15 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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"Banks and Derivatives,"
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- Gary Gorton & Richard Rosen, 1995. "Banks and Derivatives," NBER Working Papers 5100, National Bureau of Economic Research, Inc.
- Gary Gorton & Richard Rosen, . "Banks and Derivatives," Rodney L. White Center for Financial Research Working Papers 06-95, Wharton School Rodney L. White Center for Financial Research.
- Gary Gorton & Richard Rosen, 1995. "Banks and derivatives," Working Papers 95-12, Federal Reserve Bank of Philadelphia.
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"Central bank policy in a more perfect financial system,"
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B 03-1998, ZEI - Center for European Integration Studies, University of Bonn.
- JÃ¼rgen Von Hagen & Ingo Fender, 1998. "Central Bank Policy in a More Perfect Financial System," Open Economies Review, Springer, vol. 9(1), pages 493-532, January.
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