Research Discussion #1

FIN 7460 - Derivatives and Risk Management

Research Discussion #1

TOPIC: Introduction

1. What are the major functions of the derivatives markets in an economy?

2. What are some of the ways in which derivatives can be misused?

PROFESSOR'S GUIDANCE FOR THIS WEEK'S RD: 

Make  sure that you check the learning goals for this week before you go on  to the next one. Your preparation for this research question would  benefit greatly from having such information.

Financial  derivatives are commonly used for managing various financial risk  exposures, including price, foreign exchange, interest rate, and credit  risks. By allowing investors to unbundle and transfer these risks,  derivatives contribute to a more efficient allocation of capital,  facilitate cross-border capital flows, and create more opportunities for  portfolio diversification. Thus, financial derivatives are essential  for the development of efficient capital markets. However, just like any  other complex financial instrument, derivatives may and, in fact, have  at times been used by market players to take on excessive risk, avoid  prudential safeguards, and manipulate accounting rules. For example, in  the absence of adequate internal risk control and prudential  supervision, derivative instruments may allow a company to take on  excessive leverage by shifting certain exposures off balance sheets. 

Please ensure that you are adhering to the specific instructions that have been given as a part of this query.

Be  sure to proofread carefully (Use Grammarly - the premium version! Make  sure your writing score is more than 90) and cite your sources (APA 7.0  ed).
NOTE:
1. Post your 500-700 word answers by Wednesday 11:55 pm to earn a maximum of 14 points.
2.  Offer at least two 300-400 word comments (replies) to posts from your  peers’ discussions by Sunday 11:55 pm to earn a maximum of 8 points each  (total 16 points)
3. The total grade on each week's RD is 30 points.

You will be graded using the following rubric and standards.