Derivatives Market and the Economy—Unriddling the Congruity
Keywords:
Derivatives market, hedgers, speculators, monetary policy, economic growth.Abstract
In an economy, the derivatives market is extremely important. However, despite the publication of numerous empirical studies on the causation of finance and growth, its relationship to economic growth and macroeconomic determinants appears to be underexamined in academic studies. Many emerging nations, like India, have recently made the decision to create derivatives markets for risk management in order to guarantee economic stability. Through this article, the author aims to understand the concept of the derivatives market, then, dives into examining the growth of the derivatives market. On analysis, the author unravels the participants in the derivatives market— hedgers and speculators and their role in the economy. The article then goes on to analyze four major
impacts of the market on the economy, in terms of investment, technical progress, international trade, and monetary policy. The article also comprehensively deconstructs the impact of monetary policy on the derivatives market while exploring the interrelation between the derivatives market and the economy using four global economies, finally leading to the conclusion that derivatives have a positive impact on the economy and hence governments must boost the derivatives sector through policymaking and regulations.
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