Risk management in the financial services sector - The derivatives option.
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Date
2013
Authors
Fadun, O. S.
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Abstract
The paper examines risk associated with financial services sector (FSS) and suitability of derivatives to manage these risks in Nigeria. Derivatives enable firms to hedge against systemic and nonsystemic risks. The main types of derivatives are: forwards, futures, options and swaps. The paper highlights the need for development of derivatives market in Nigeria. To this effect, the Central Bank of Nigeria (CBN) has issued guidelines for foreign exchange derivatives to strengthen investors’ confidence. Using CBN publications and the literature, the study concludes that derivatives products are suitable for managing risks associated with the FSS in Nigeria; if properly engaged, derivatives provide massive economic benefits to the nation’s; and, development of derivatives market in Nigeria is necessary to enhance liquidity and mobilise the required capital for economy growth. The study is imperative in two major ways: first, it facilitates the understanding of derivatives market, products and participants; and second, it advocates the development of derivatives market and the use of derivatives to manage FSS risks. The study contributes to knowledge, as no study has been conducted on suitability and use of derivatives to manage the FSS risks in Nigeria.
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Fadun, O. S. (2013). Risk management in the financial services sector: The derivatives option. International Journal of Humanities and Social Science Invention, 2(1), 22-31.