Particularly since the early 1980s, derivatives have come to account for a significant share of international financial transactions. They have been used not only for hedging, but also for trading activities. In addition, the cost-saving features of these products and the flexibility they afford investors and borrowers have fueled their expansion. The wave of financial deregulation, technological innovation, and competition among market participants has further facilitated the development of derivatives. Adverse changes in exchange rates, for example, can eliminate a firm's overseas profits commodity price fluctuations can increase input prices of production and changes in interest rates can put pressure on a firm's financial costs. Their rapid growth can be attributed to the need of investors and borrowers to manage risks in an environment of fluctuating exchange rates, interest rates, and commodity prices. Many derivative transactions are international, involving residents of different countries, and they are often conducted in multiple currencies. Financial derivatives include swaps, options, forwards, and futures for interest rates, currencies, stocks, bonds, indexes, and commodities. FINANCIAL DERIVATIVES: DATA GAPS AND NEEDSĪmong the most important changes in world financial markets over the past two decades has been the emergence of a myriad of new and rediscovered financial instruments in the form of derivative products.
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