Book contents
- Frontmatter
- Dedication
- Contents
- List of Tables, Figures and Boxes
- Foreword
- Preface
- Acknowledgements
- 1 Introduction
- 2 Definition and Typology
- 3 The Economic Functions of Derivatives Markets
- 4 Market Completion
- 5 Derivatives and Price Stabilization
- 6 Derivatives and Price Destabilization
- 7 The Effects of Derivatives on Prices of the Underlying: A Synthesis
- 8 Causes of the Rapid Growth in Derivatives Trading: A Historical Perspective
- 9 The Role of Derivatives in the Global Financial Crisis of 2008
- 10 Models and their Effects on Markets
- 11 Derivatives and Emerging Markets – Part I
- 12 Derivatives and Emerging Markets – Part II
- 13 Regulation of Derivatives
- 14 Derivatives and Development: A Critique
- 15 Regulatory Policy for Derivatives: A Pragmatic Approach
- Index
- About the Authors
12 - Derivatives and Emerging Markets – Part II
Published online by Cambridge University Press: 05 May 2015
- Frontmatter
- Dedication
- Contents
- List of Tables, Figures and Boxes
- Foreword
- Preface
- Acknowledgements
- 1 Introduction
- 2 Definition and Typology
- 3 The Economic Functions of Derivatives Markets
- 4 Market Completion
- 5 Derivatives and Price Stabilization
- 6 Derivatives and Price Destabilization
- 7 The Effects of Derivatives on Prices of the Underlying: A Synthesis
- 8 Causes of the Rapid Growth in Derivatives Trading: A Historical Perspective
- 9 The Role of Derivatives in the Global Financial Crisis of 2008
- 10 Models and their Effects on Markets
- 11 Derivatives and Emerging Markets – Part I
- 12 Derivatives and Emerging Markets – Part II
- 13 Regulation of Derivatives
- 14 Derivatives and Development: A Critique
- 15 Regulatory Policy for Derivatives: A Pragmatic Approach
- Index
- About the Authors
Summary
The sight of bankers from the rich industrial countries capturing their home governments is bad enough. To watch them attempting to capture or bully foreign governments, often in emerging markets or developing countries, is truly objectionable. It is time to play the international lending game with an honest deck.
Willem Buiter(2009)The previous chapter looked at derivatives markets in emerging economies. This chapter examines
• the use of derivatives by emerging economies (especially by governments) as risk management tools; and
• issues arising from derivatives which have emerging market risks as the underlying.
Like the previous chapter, case studies are used to illustrate more general issues.
Use of derivatives by emerging economies
For decades, economists have suggested that developing countries could use international commodity markets to hedge commodity price risk. In recent years, with the introduction of catastrophe derivatives and weather derivatives, the same has been said about natural disaster risks. Though successful cases of actual use have been relatively few, there is concrete evidence that the potential can be, and is being, translated into reality.
Hedging macro-economic risk from commodity prices: The Mexican case
Mexico has, for many years, followed a policy of hedging its oil output in order to reduce budget uncertainty and instability. Oil has for many years occupied a crucial position in the Mexican economy. In the 1980s, it accounted for over 50 per cent of exports (see Figure 12.1). The importance of oil has waned over the years for Mexico as its oil production has declined and other exports have grown. Its oil production peaked in 2003 at 3.37 million barrels per day and in 2012, it was 2.548 million barrels per day. Total exports were $ 371 billion in 2012 with crude petroleum exports constituting $ 47 billion – about 13 per cent, still significant but not critical.
- Type
- Chapter
- Information
- The Economics of Derivatives , pp. 165 - 178Publisher: Cambridge University PressPrint publication year: 2015