"Derivatives are Financial Instruments of Mass Financial Destruction"
I wonder why anyone would think like this.
Then I thought & searched for reasons, some things which I found where:
1. Commodity Derivatives:
These instruments have contributed to make our basic commodities prices unstable.
I don’t understand what is the need to have Commodity Derivatives, where traders play with them to make profits & We, the common masses, have to bear the consequences.
2. Currency Derivatives:
These instruments originally evolved for hedging the Foreign Currency Fluctuations are now the major reason for Foreign Currency Fluctuations. From a 'to be Boon" to a "concern" to Foreign trade – Currency Derivatives, What purpose do they serve now?
3. Equity Derivatives:
If I want to start a company & get it listed, one major concern would be the Capital Market, especially the Stock Markets.
Stock Markets are well-known to be the Fastest way to make or lose Money, playing with the shares of the Company, where Consensus decides the fate more, than the fundamental strengths of the company.
Equity Derivatives make it even worse, because Groups with deep pockets (Institutional Investors) can decide the fate of my sweat driven company more than what I can do.
Now can anyone please tell me Why Derivatives must not be a Taboo?
I’m a student, still learning & searching for more insights; maybe I’m wrong but, would love to test my grounds of observation. Please express your views.
DISCLAIMER: The views expressed above are personal & any liability in respect of any actions taken after considering the above views will not be admitted.
CAclubindia
