Question

As a Derivatives Senior Analyst of the Bank of Namibia (BoN), you are requested by the Investment Committee (IC) to submit a detailed proposal at their next Meeting (to be held on the 20^th July 2020) on how to “practically” use Derivatives instruments for Risk Management purposes as well as provide recommendations to the IC on how the BoN could Develop and Regulate a Derivative market in Namibia?

Answer 1

Answer:

My report about utilization of derivative in risk administration purposes and suggestion to the investment committee will be as per the following :

1) Derivative will be utilized so as to control the risk exposure of different Financial foundations ahead of time by proactive administration of those risk estimations.

2) The expenses related with taking presentation in derivative isn't higher and these can offer higher adaptability in the exchange with low-cost so it is cost proficient in nature

3) Derivative can likewise offer an adaptability in taking exchanges beyond the residential structure of a financial organization so they can likewise deal with their exchange rate risk utilizing derivatives.

4) Derivatives will for the most part have an enormous market interest and they can be useful in creation of the reasonable value of spot contracts.

Investment committee can help the bank of Navya so as to create direct the derivative market through :

i) Proactive plan of fiscal strategies which will be useful in guideline of these agreements or contracts.

ii) As far as possible or the fluctuation limits ought to be kept and the derivative ought not have the option to move beyond those cutoff points through use of circuits.

iii) They can likewise build up margin control quantifies with the goal that lone those financial specialists who have an enormous capital can participate in this market.