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Essay / Research Paper Abstract
This 5 page paper looks at the role of derivatives in the 2007/9 credit crisis. The level of the direct contribution is assessed and then the way that the derivatives market works and the use of tools such as wasp are considered to ascertain the reasons for their impact on the financial crisis. The bibliography cites 9 sources.
Page Count:
5 pages (~225 words per page)
File: TS14_TEcrisderv.rtf
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Unformatted sample text from the term paper:
a significant role. Since the beginning of 2007 derivatives have contributed $1.5 trillion in write downs (Hamlin, 2009). When it is considered that the current market value of derivatives is
estimated to be worth a total of $592 trillion by the Bank for Intentional Settlements, which is ten times the level of the worlds GDP, the potential danger of this
market is apparent (Hamlin, 2009). The dangers of derivatives have been noted by many, Warren Buffet included, who argues that there is a positive potential for derivatives in helping to
mitigate risk and act as a stabilising force, but they also have the potential for danger due to the lack of regulation and the incestuous patterns of derivative dealing between
market counterparties (Blackburn, 2008). To understand how the use of derivatives has played such as significant role their development and use can be examined. Derivatives are financial tools that
have the goal of creating a price exposure to variation in price of an underlying asset, event or commodity. Usually they do not involve the transfer of title or the
principle of the title; this is not their purpose (Dodd, 2002). The aim of the tool is to capture market price changes of an underlying event, such as prices for
a commodity changing or exchange rates fluctuating or other event, such as the credit default swaps. The name derivative comes from the way the derivative contracts, derive their value and
price from an underlying security or asset or form an index, exchange rate, interest rate or other event (Howells and Bain, 2004). There are a number of different types of
derivatives; these include futures, forwards, swaps and options which may also be combined creating hybrid financial tools. Their main use is to reduce, limit or transfer risk from one party
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