StudentShare solutions
Triangle menu

Financial services ( Derivatives ) - Essay Example

Not dowloaded yet

Extract of sample
Financial services ( Derivatives )

In United Kingdom, derivatives can be traded by two methods: either through an over-the-counter (OTC) or organised exchange. The exchange traded derivatives market is controlled by Chicago Mercantile Exchange and Euronext.LIFFE that is based in London. Exchange traded derivatives are always bought and sold in an exchange setting that is totally regulated and transparent. On the other hand, OTC exchanges takes place when trader prefer to trade directly with each other. Between both types of trade, there are two main differences: Firstly, exchange traded contracts increases liquidity. Secondly, traders enter into a contract through the exchange clearing house which gives them a guarantee that the contract will be adhered to. Over-the-counter trade do not have that lavishness because there is always the risk that one of the contractors will fail to honour the original agreement thereby going into liquidation (Reid, 2013, p.1). This paper will focus on the list of bank and companies making losses from using derivatives and what are the risks and benefits of different types of derivatives contracts. Bank and Companies Exposed to Losses There are some banks and companies which are exposed to losses due to derivative contracts. ...
The financial disorder with its rigorous liquidity and credit crunch seemed to detain to financial markets and institutions in the UK. It resulted in the failure of the key businesses, downturn in the economic activity and reveals a quick drying up of liquidity following a huge expansion in credit issued to consumers and financial institutions. Metallgesellschaft AG engaged in a wide range of activities from engineering to trade and mining and financial services. The firm was exposed to large derivatives related losses at its U.S. oil subsidiary which is known as Metallgesellschaft Refining and Marketing. It had accounted a loss of $1 billion. Metallgesellschaft AG losses were attributed to its wrong hedging program. Risk of Derivative Contracts Risks associated with derivatives are market risk, credit risk, counterparty credit risk, transparency risk, legal risk and basis risk. Counterparty Credit Risk It is the risk that a party to a derivative contract will be ineffective to perform on its obligation. AIG tinted weakness in the supervision of counterparty risk and thus less clearable, OTC derivatives. AIG’s counterparties had decided to only require collateral to cover counterparty risk of American International Group if AIG were downgraded. When American International Group did experience the difficulties simultaneous liquidity squeeze and collateral calls at AIG resulted in its ultimate bail-out to evade systemic outcome. Posting to collateral either through upfront margins or mark-to-market margins is used to minimise counterparty risk to which they are exposed (Fsa, 2009, p.5). Transparency Risk The bankruptcy of Lehman Brothers tinted that positions and disclosure of firms in OTC derivative market were ...Show more

Summary

Finance and Accounting Financial Services (Derivatives) Table of Contents Table of Contents 2 Inroduction 2 Bank and Companies Exposed to Losses 3 Risk of Derivative Contracts 4 Counterparty Credit Risk 4 Transparency Risk 5 Legal Risk 5 Credit Risk 5 Market Risk 6 Basis Risk 6 Benefits of Derivative Contracts 6 Conclusion 8 Reference 9 Inroduction A derivative contract is referred as a bilateral agreement which grants for payment to be made by one contracting party to the other…
Author : jsauer
Financial services ( Derivatives ) essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the essay on your topic
"Financial services ( Derivatives )"
with a personal 20% discount.
Grab the best paper

Related Essays

Financial Services
This paper critically examines the general approach to measuring capital adequacy levels of banks as per the new standards implemented by the Basel III. The paper subsequently discusses the drawbacks of the Basel II standards that were exposed during the 2008 worldwide financial catastrophe and which consequently led to the development of the Basel III standards.
12 pages (3000 words) Essay
UK financial services
The financial services sector has been a major player in global financial services, and any uncertainty and instability is likely to result in an equal level of uncertainty and instability in the global financial system. During the 2008 global financial crisis for example, the UK and US markets (two of the biggest financial services sectors in the world) were the first to start suffering.
10 pages (2500 words) Essay
Marketing Financial Services

The conclusion from this review states that Morgan Stanley is a well known in the financial sector and is based in the United States but has offices all over the world. The biggest strength of the company is its brand image and a large base of employees. The company also has experience of many years in the financial sector.

10 pages (2500 words) Essay
Financial services
The assists their clients to manage the risk and return related to their wealth, thus, optimizing the value of their money. There are different kinds of advisors, tied, multi-tied and independent depending upon the number of firms they provide advises on.
4 pages (1000 words) Essay
Financial services
The underlying factors of the market that determines the value of derivative contracts may be currency conversion rates, interest rates, equity prices, commodity prices, etc. The derivative contracts may take the form of options, swaps, futures, forwards, etc.
5 pages (1250 words) Essay
Financial Services and Markets
With a more or less similar objective of regulating the investment services across all member states of the European Union, Markets in Financial Instruments Directive (MiFID) has been introduced. While replacing the Investment Services Directive (ISD), MiFID proposes to achieve the objectives of protecting the investors in the EU as well as responding to changes and innovations in the securities market.
8 pages (2000 words) Essay
Risk Management and financial derivatives
According to a study conducted by the Wharton School of University of Pennsylvania, over the past thirteen years, pharmaceutical companies are as much as 50% riskier than the overall Standard & Poor's (S&P) 500. This is primarily attributed to the nature of the industry wherein any events, either positive or negative, are magnified and deemed to have a dramatic effect on shareholder value and brand equity.
11 pages (2750 words) Essay
Critically consider: (a) The role played by derivatives in credit default and implications raised by derivatives users if derivatives are misused; and (b) what lessons should be taken by the UKs financial sector and regulators in relation to 'Be
In addition to this, derivatives offer sophisticated management of risk. They allow for gearing or what is known as leverage. This is known as the ability of derivatives to soar 100 percent within a few days, when the security has risen to by a
3 pages (750 words) Essay
Financial services ( Derivatives )
In United Kingdom, derivatives can be traded by two methods: either through an over-the-counter (OTC) or organised exchange. The exchange traded derivatives
7 pages (1750 words) Essay
Financial derivatives
s research paper discusses how Financial Derivatives is used as an instrument to hedge financial risk such as foreign exchange and also for speculative purposes (Imf.org, 2014). Common underlying assets include currency exchange rates, market indexes, interest rates, bonds,
3 pages (750 words) Essay
Get a custom paper written
by a pro under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
YOUR PRIZE:
Apply my DISCOUNT
Comments (0)
Rate this paper:
Thank you! Your comment has been sent and will be posted after moderation