Derivatives - the financial bomb of mass destruction flower box | Niepoprawni.pl
Exactly as described derivatives legendary flower box investor Warren Buffett. Derivative has no value in itself. The move is part of the company. A bond is a promise to repay the borrowed amount with interest. While derivative is a pure plant, like in a casino. Derivatives tendered practically everything from interest rates, foreign currencies at risk of bankruptcy of whole countries. The most ridiculous are the derivatives of the weather but this also exist.
In the simplest terms, market participants are buying futures contracts that increase in value if their projections prove accurate. However, if the price changes contrary to the expectations of the contract holder (derivatives) to bear the loss. Importantly, when used commercially derivatives leverage large excess of 1:200 in some cases. It's as if we invested 200 thousand. with only 1 thousand. own resources.
In the past, contracts played a very useful role. Manufacturer of copper fearing changes in prices on the world markets through futures contracts could guarantee a fixed price for the next few months. The risk of price changes cared speculator (financial institution). There is a solution to facilitate the conduct of business.
Over the years, however, futures contracts from its original role przeistoczyły a tool for pure speculation and price manipulation flower box of any assets of the international flower box markets. Today, however, the most important role of derivatives flower box to control interest rates because of their rapid growth could lead to premature decay of a system based on debt.
Few people realize that over the years the global casino, how can you accurately determine flower box the derivatives market has grown to unprecedented proportions threatening the functioning of the real economy. Derivatives in its current form, are instruments that were introduced at the end of the last century. Most of them are not subject to any regulation, which is quite difficult to determine the actual size of the derivatives market.
According to the most conservative estimates, the Bank for International Settlements value of all derivatives at the end of 2013 amounted to 710 trillion. Trillions not billions. This is approximately the amount corresponding to 10-year-old global production of all goods and services.
Sticking to conservative calculations, BIS amount flower box of 700 trillion flower box is a tremendous value. flower box In case of any problems among market participants (investment banks) flower box scale losses for the real economy can be enormous.
Firstly, the investment banks that are party to the transaction have nieporównywanie less capital than the total sum of derivatives. Thus, if the investment bank will not go under the premise quickly it can be without capital.
It's like playing 20-year-old comex'em, who have the disposal of huge leverage implies a contract amounting to the 40 thousand. zł, investing only 1 thousand. zł own capital. If our gambler bet on a decline flower box in the price of assets, such as coffee, gold and gas, while it increased by only 2.5% would suddenly without capital. Importantly, our investor lost his means. In the world of finance is not so rosy.
Since the law was abolished Glass Stegall allowed to connect to the savings banks - credit investment banks. This allowed financial institutions speculation using funds accumulated in bank deposits. flower box In practice, this has led to the multiplication of the scale of risky bets and proliferation of various derivatives.
The second problem is the collateral (the deposit). In the above example, our "investor" paid 1 thousand. flower box in cash. The vast majority of investment banks as protection applies 10-year government bonds. Such bonds lose value in the two cases. When interest rates rise or when a country announces insolvency and investors fear the escalating scale bankruptcies (Asian crisis).
Today, unfortunately, we are doing both of historically low interest rates (high risk of rising interest) and a very high level of debt (high risk of bankruptcy in many countries). The decrease in the value of the deposit (bond) as it is known enforces the need of replenishment, and may be missing flower box funds.
The situation in the derivatives market is a bit like the story of fund Long Term Capital Managament managed by two Nobel Prize winners. Fund gave a fantastic cope for some time. Too much confidence translated into investments with high lewaru. Surprisingly, however, there was a crisis in Russia. Markets reacted inversely to forecasts fund managers. Within a few weeks the entire capital investors is gone and to prevent a cascade of bankruptcies government had to take out the bad debts at the expense flower box of taxpayers.
LTCM problem is nothing compared to the current derivatives market. Below you can themselves assess the scale of the problem to substitute
Exactly as described derivatives legendary flower box investor Warren Buffett. Derivative has no value in itself. The move is part of the company. A bond is a promise to repay the borrowed amount with interest. While derivative is a pure plant, like in a casino. Derivatives tendered practically everything from interest rates, foreign currencies at risk of bankruptcy of whole countries. The most ridiculous are the derivatives of the weather but this also exist.
In the simplest terms, market participants are buying futures contracts that increase in value if their projections prove accurate. However, if the price changes contrary to the expectations of the contract holder (derivatives) to bear the loss. Importantly, when used commercially derivatives leverage large excess of 1:200 in some cases. It's as if we invested 200 thousand. with only 1 thousand. own resources.
In the past, contracts played a very useful role. Manufacturer of copper fearing changes in prices on the world markets through futures contracts could guarantee a fixed price for the next few months. The risk of price changes cared speculator (financial institution). There is a solution to facilitate the conduct of business.
Over the years, however, futures contracts from its original role przeistoczyły a tool for pure speculation and price manipulation flower box of any assets of the international flower box markets. Today, however, the most important role of derivatives flower box to control interest rates because of their rapid growth could lead to premature decay of a system based on debt.
Few people realize that over the years the global casino, how can you accurately determine flower box the derivatives market has grown to unprecedented proportions threatening the functioning of the real economy. Derivatives in its current form, are instruments that were introduced at the end of the last century. Most of them are not subject to any regulation, which is quite difficult to determine the actual size of the derivatives market.
According to the most conservative estimates, the Bank for International Settlements value of all derivatives at the end of 2013 amounted to 710 trillion. Trillions not billions. This is approximately the amount corresponding to 10-year-old global production of all goods and services.
Sticking to conservative calculations, BIS amount flower box of 700 trillion flower box is a tremendous value. flower box In case of any problems among market participants (investment banks) flower box scale losses for the real economy can be enormous.
Firstly, the investment banks that are party to the transaction have nieporównywanie less capital than the total sum of derivatives. Thus, if the investment bank will not go under the premise quickly it can be without capital.
It's like playing 20-year-old comex'em, who have the disposal of huge leverage implies a contract amounting to the 40 thousand. zł, investing only 1 thousand. zł own capital. If our gambler bet on a decline flower box in the price of assets, such as coffee, gold and gas, while it increased by only 2.5% would suddenly without capital. Importantly, our investor lost his means. In the world of finance is not so rosy.
Since the law was abolished Glass Stegall allowed to connect to the savings banks - credit investment banks. This allowed financial institutions speculation using funds accumulated in bank deposits. flower box In practice, this has led to the multiplication of the scale of risky bets and proliferation of various derivatives.
The second problem is the collateral (the deposit). In the above example, our "investor" paid 1 thousand. flower box in cash. The vast majority of investment banks as protection applies 10-year government bonds. Such bonds lose value in the two cases. When interest rates rise or when a country announces insolvency and investors fear the escalating scale bankruptcies (Asian crisis).
Today, unfortunately, we are doing both of historically low interest rates (high risk of rising interest) and a very high level of debt (high risk of bankruptcy in many countries). The decrease in the value of the deposit (bond) as it is known enforces the need of replenishment, and may be missing flower box funds.
The situation in the derivatives market is a bit like the story of fund Long Term Capital Managament managed by two Nobel Prize winners. Fund gave a fantastic cope for some time. Too much confidence translated into investments with high lewaru. Surprisingly, however, there was a crisis in Russia. Markets reacted inversely to forecasts fund managers. Within a few weeks the entire capital investors is gone and to prevent a cascade of bankruptcies government had to take out the bad debts at the expense flower box of taxpayers.
LTCM problem is nothing compared to the current derivatives market. Below you can themselves assess the scale of the problem to substitute
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