Question

Discuss

- the evolution of the world's derivative markets and

-possible reasons why derivative markets were introduced relatively late in Turkey

Limit your discussion to a maximum of 400 words.

Answer 1

Financial markets derivative segment have been used for different purposes during different time period as it can be seen that earlier when the financial market derivatives were introduced it was just limited to speculation but once the the financial market derivatives had been properly regulated and properly checked into, they are used for hedging purposes and they are also used by various types of investors as speculating the direction of the market in the short term.

Derivatives market are an embedded arm of overall financial market which will be providing for a speculating of movement of securities as well as various commodities and they will be providing for hedging purposes for various individual investors as well as institutional investors and they will be helping in reduction of risk and maximisation of Return.

Derivatives markets are consisting of various instruments like futures as well as options and swaps as well as swaptions which will be providing for hedging of the risk and they can also be used in order to make a high rate of return for the longer period of time so, it can be used by various investors in different form and they are used to control the fluctuations and volatility and prediction of uncertainty so they have continuously evolve themselves and regulatory authorities has also implemented better regulation mechanism which has led to to better management of these derivative instruments which has protected the interest of investors all across the world.

Potential reasons because of which derivatives markets were introduced late in Turkey because they are considered highly risky as these derivatives markets are often known for wild movement and they are highly liquid so they will be providing for wild movement in the market which can create panic.

Turkey also estimated that there was a regulation problem because these securities are highly volatile and the management of the securities would not be easily possible and they are hybrid in nature also so there would be various new types of securities which can be floated out of derivative segments and it will not be easy to control the movement of all this derivative instruments.

Hence, due to high risk associated with this derivative instrument and protection of the risk of the investors Turkey did not implement derivatives market early