Bursa Malaysian Derivatives Case Study

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Case Question – (a)
Background on the derivative product of your selection
Derivatives is the composite term used for an extensive class of financial instruments, which derive their value from the underlying financial assets, events or conditions. Thus, derivatives are financial assets whose value and characteristics rely upon the value and characteristics of an underlying asset, usually a commodity, equity, currency or bond. Examples of commonly used derivatives comprise forward, futures and options (Reilly et al., 2011). The given question emphasizes on the descriptive overview of the derivative product selected. Hence, the essay seeks in particular at the background details of the selected derivative. It not only describes the historic
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All these categories offer different types of derivatives such as forward, futures, options and spot markets. In order to evaluate the importance and contributions of the derivative trading to the Malaysian economy, different aspects of the economy in line with how derivatives assist in the growth and development of these aspects and the role of derivative trading in the improvement of general economy are discussed in the essay. Thus, it looks in particular at the role of derivative trading and its contributions to the well-being of the Malaysia economy. These analyses would then lead this essay to a reasonable…show more content…
Derivative markets are essential part of developed financial markets in some 40 economies but most emerging markets have commenced to evolve derivative markets for hedging purposes. According to Merton (1995), the risk allocation and price discovery functions derivative hedge securities in emerging or developing markets could assist in mitigating the price distortions by reducing agency and transactions costs and information asymmetry in spot market. This, in turn, results in efficient allocation of resources and thus economic growth. This is exactly the case of Malaysian derivatives market, where all these economic functions play a major role in the economic expansion. A crucial factor of developed financial markets (thus a developed economy) is that they all are operating wealthy derivative markets but this is not the case in emerging markets in global

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