Assignment Most people become aware of the importance of derivatives only by reading headline reports of major financial troubles in which they were involved. However, spectacular losses are only the tip of the iceberg. In the newspaper headlines one will never read about the millions of deals providing economic gains to hedgers or speculators without disrupting economic development. And, of course, after every crisis episode there are major lessons that can contribute to the improvement of the markets.
1. Have global financial markets become safer or riskier thanks to the presence of derivative instruments? Elaborate your argument using financial and economic analysis
2. One highly publicized crisis episode concerning derivatives is the bankruptcy of Barings Bank. Describe the facts that led to this failure and analyze the reasons, stressing the mistakes in the option strategy
3. Draw policy conclusions from the Barings case for the regulation of the financial sector