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Why are financial derivatives not traded in some countries such as Zimbabwe when they are the best instruments to manage risks?

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Question added by Berthina Chaurura
Date Posted: 2015/11/05
Fadzai Rambanepasi
by Fadzai Rambanepasi , Investment Analyst , Score Holdings Pvt Ltd

Derivatives derive their value from and underlying asset and most assets require a known interest rate yield curve to be able to compute their value. In the case of zimbabwe there are no publicly traded government securities that can be used to determine the yield curve or interest rates for that matter making it impossible to price assest and hence the failure to develop derivatives.

Moin Nawaz Shaikh
by Moin Nawaz Shaikh , Senior Manager , Société Générale

Financial derivtives if not used wisely can itself cause a lot of risk

Richard Abdallah
by Richard Abdallah , Risk Manager , Arabia Insurance

Most under developed countries don't use derivatives in their exchanges because of little knowledge and experience in pricing or using them to hedge.

Derivatives are complex and can lead to more speculation in the markets and even more risk, so they are not necessarily the best way to manage financial risk.

 

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