Question

1) why the proposal of diffuse information about use of derivative instruments and development of a transaction formal market with derivative instrument to develop the derivative market ?

2) Why a company who like to use numerical or computational models to evaluate the risk of company ?

3) Why a company choose 'Tailor-made' products offered by Peivate Banking to obtain a financial derivative instrument ?

(1/2 sentences enough already) Thank You

1) How can that 2 proposal to develop the derivatives market

3) offered**

Answer 1

1)The reason behind proposal of diffuse information as to use of derivates is to prevent the Non- financial firms from accessing the use of derivatives. Because most non-financial firms were prone to get affected by foreign exchange risks and interest rate risks according to survey of Wharton school of business. It was found by the survey that the key personnel in such firms have only basic knowledge on derivative markets. So it was recommended to make develop the formal market for derivative products.

2)Company would like to use numerical or computational models to evaluate the risk of the company mainly because these methods help in sizing up of the risks company exposed to. It is necessary to know the quantum of risk of contingencies so that company can take proactive steps. Numerical models serve this purpose by expressing the risk in quantitative terms. Computational models use widely accepted and reliable mathematical, statistical methods in sizing up the quantum of risk.

3)The main reason why the company should choose tailor mode derivatives offered by private bank is that these banks primarily have specialized professionals and well established, reliable systems supporting the over the counter derivatives such as swaps, forward rate agreements, forward contracts, credit derivatives etc.