The Impact of Financial Derivatives Market on the Uk...

Research Proposal: 1-Provisional title: The impact of Financial Derivatives market on the UK economy-: Before, during and after the 2008 Financial crisis. 2-Rationale The operations of the derivative market has become a rising concern today in the world and in the UK in particular as this market could destabilize the efficiency of the financial market and the economy at large if not managed properly by its users or if a major fault occurs in the derivative market, as it plays a vital role as a risk management instrument in the economy. Financial derivatives had been introduced in the financial markets as an instrument to help manage risk cause by fluctuations in exchange rates, interest rates and stock market prices in the financial†¦show more content†¦He based his research on what was he called the real and behavioural triggers of the 2008 financial crisis. He then went on to say that the real triggers of the crisis had to do with the systematic environment of high leverage in the financial markets, corporate and household sectors and the international nature of finance and banks balance sheets. He classified the underestimation of risk by almost all agents in the economy as a behavioural trigger to the crisis. He specified on the underestimation of risk in the newly issued assets and also in the corporate sector leverage that began in the 21st century. According to him, new and complex derivatives instruments were not mostly regulated before the crisis of 2008, which he suggested could have been the trigger to the crisis. He concluded that some of the triggers like the behavioural trigger could only be incorporated into the new bank regulations as they would not change. Another study carried out by Shiu Yung-Ming et. al. (2005), examined the determinants and the impact of derivative usage on bank risk. In their study, they said derivatives had proved to be an efficient tool in the management of risk as it was an easy instrument for which residual risk from commercial operations was hedged. They agreed with most researchers by saying that derivative usage was a primary instrument used by both financial and non-financial firms for the management of their financial risks. Thus they came to a realisation that the use ofShow MoreRelated2008 Financial Crisis: Icelands Then Now Essay examples1558 Words   |  7 PagesCauses of the Crisis On September 15, 2008, the American bank Lehman Brothers, with holdings over 600 billion USD, filed bankruptcy. This was by far the biggest bankruptcy in U.S history and it marked the beginning and the largest financial crisis ever. How can one of the biggest banks in the world fail? How can a bankruptcy in US make someone on the other side of the world unemployed? 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