The United Arab Emirates (UAE) has a multicultural society and a vast growing economy. The UAE is situated in the Middle East with the capital Abu Dhabi,an official language Arabic and covers over 83600 km carrying a population of over 8,200,000. Its Economy is reliant on oil, racking in 981 Billion Dirhams in respects to GDP ( Gross Domestic Product). it is a nation that is indeed blessed with riches that come in the form of oil and precious metals. the fact that it is a major hub that attracts people’s attention provides it with a huge pool of investors and one of the financial instruments investors engage in is derivatives (UAE government, 2009)..
‘A derivative is a financial instrument which is a contract between two parties that derives its price from an underlying asset’. Usually, the worth of the principal asset changes continuously as time goes by. These underlying assets could be bonds, stocks or even interest rates. Derivatives are used for hedging and mitigating risks that arise from foreign exchange and commodity dealings. They assure buyers of protection whether or not the type of derivative’s value increases or decreases during the time as specified in the contract (Dubai Islamic Bank, 2013) . All these benefits portray the purchase of a derivative as a good and before the establishment of derivatives, a substantial amount of people and organizations incurred financial losses due to the transaction of unsupervised assets such as money. UAE started introducing derivatives to the nation with gold and silver futures, then currency and after oil futures which are no longer traded in the financial markets. the current ones used in the UAE exist in the from of energy, metals, equities, future contracts and currency.
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...f banks, its own private bank, Dubai Islamic bank adheres to the shari’ah banking laws. These banking laws specify that derivatives must be matched up to the clients hedging objectives and no further. Thus, no profits are made through the use of derivatives but the clients’ interests are protected.
The UAE’s expansion of its derivative trading market shows that it is a huge part of its market and would lead to the further development and growth of the country. Although the nation is very much intertwined with the global market due to its tourist and trade reputation, it would lead to the further integration of the regional market with the international market which would open up more room for future advancement and unexploited benefits to the UAE. These derivates has boosted investments and developments throughout the UAE and will continue to do so in the future.
Dubai’s debt exists as a fundamentally important aspect of modern economic research. Set against a backdrop of fluctuating stock prices, an unstable real estate market and an uncertain world economy, speculation about the future of Dubai is rife, despite Dubai initially appearing to bear the global financial crisis far better than most other affected countries.
Caterpillar Inc. also faces the risk of its cash flow and earnings being affected by fluctuations in the exchange rates of currency, commodity prices, and interest rates. To control for this, the company’s Risk Management Policy ensures prudent management of interest rates, commodity prices, and exchange rates of foreign currency by allowing the use of derivative financial instruments. According to the policy, the derivative financial instruments are not supposed to be used for the purpose of speculation. In its pricing strategy, Caterpillar Inc. faces the risk of difficult shipping of its products. This risk can be encountered by offering its products on instalments and lease to its loyal customers (Caterpillar, Inc. (CAT), 2011).
Flawed financial innovations: the implementation of innovations in investment instruments such as derivatives, securitization and auction-rate securities before markets. The indispensable fault in them is that it was difficult to determine their prices. “Originate to distribute securities” was substituted by securitization which facilitated the increase in ...
Some investors are wary about the process of investing internationally, carrying the concept that it is always to precarious and complex. While there are risks involved with international investing, there are also very beneficial and profitable reasons for doing so. Ev...
The expanding global market has created both staggering wealth for some and the promise of it for others. Business is more competitive than ever before, and every business, financial or product-based, regardless of size or international presence is obligated to operate as efficiently as possible. A major factor in that efficient operation is to take advantage of every opportunity to maximize profits. Many multinational organizations have used derivatives for years in financial risk management activities. These same actions that can protect multinational organizations against interest rate futures and currency fluctuations can be used to create profits for those same organizations.
In conclusion, hedging risk with financial derivatives can give firm range of benefits such as lower probability of having financial distress, lower value of debt ratio, and earn tax benefit. It can be concluded that firm should hedge risk using financial derivatives because lot evidence shows that firm using this strategy is more successful than those who are not. However, since different type of companies facing different risks, they should not necessarily use the same hedging strategy.
Howells, Peter., Bain, Keith 2000, Financial Markets and Institutions, 3rd edn, Henry King Ltd., Great Britain.
The modern Islamic Finance industry is young, its timeline begin only a few decades ago. However, islamic finance is involving rapidly and continues to expend to serve a growing population of muslims as well as conventional.
Saudi Arabia’s capital market is considered to be young compared to other financial markets in the region. Saudi financial markets have been developing slowly because most enterprises in the country are either government owned or family-owned, most of which was funded through state budget, and as a result reduced the need for financing. In the recent past, Saudi Arabia has focused on a careful measurement for structural developments and regulatory changes. However, different phases of historical development of the capital market which can be classified into three phases; pre-industrialization phase, post industrialization phase and growth phase that sparked changes and shaped the kingdom 's capital market on
Dar, H., Harvey, D. and Presley, J. 2014. Size, Profitability, and Agency in Profit- and Loss-sharing in Islamic Banking and Finance. [report] Cambridge, Massachusetts: Proceedings of the Second Harvard University Forum on Islamic Finance.
The IMF report has noted that the UAE has made notable and commendable strides in responding to the ever increasing challenges fronted by the well-orchestrated and resource-rich international crime syndicates. However they have identified a number of areas where the UAE central bank has fallen short of meeting requirements and expectations as can be seen in their detailed assessment report on the UAE’s Anti-Money Laundering and Combating the Financing of Terrorism. The UAE has been described by the IMF as a society where the carrying of large amounts of cash and purchasing goods and property with cash is a common phenomenon. These large scale cash activities usually provide an effective hideaway to criminalized activities such as Money laundering and Terrorism financing. The ML and terrorist financing (TF) vulnerabilities exist in the UAE due to the reliance on cash based transaction settlements in the economy as well as the expansion into offshore businesses, the use of international business companies, and the increasing amount of direct foreign investment from many countries. Among the notable findings in the report are the challenges brought about by the Hawala money transfer system in the UAE, lack of adequate customer due diligence measures and inadequate suspicious transaction reporting among financial institutions in the UAE. These are discussed below.
...ofit. Hence, in terms of risk management Islamic banks are more reliable. In addition, with the increasing population of Muslims all over the world, and the recent economic theories proving Islamic banks’ advantages over traditional banks especially during hard times, I believe that new financial system that are based on Islamic principles will play a very important role in the near future.
...ting in hedging activities in the financial futures market companies are able to reduce the future risk of rising interest rates. By participating in the financial futures market companies are able to trade financial instruments now for a future date (Block & Hirt, 2005).
According to Shari’ah, which is the guidelines underlined by Islam, there is several principles of Islamic Banking that are in accordance to its practices. They are :-
The increasing investments in derivatives have attracted my interest in this area. Through the use of derivative products, it is possible to partially or fully transfer price risks by locking-in asset prices. As the volume of trading is tremendously increasing in derivatives market, this analysis will be of immense help to the investors. Generally, two types of different opinions exist in Derivative Market. One is that derivatives trading increases stock market volatility due to high degree of leverage, low transaction costs and hence increases speculation & destabilizes the market. On the other hand, another thought claims that futures market plays an important role in price discovery, enhances market efficiency and reduces asymmetry information of spot market and has beneficial effect on the underlying cash market. This gives rise to the controversy among the researchers, academicians and investors on the effect of derivatives on the underlying market volatility. The basic need is to understand Different kinds of investors to invest in equity & derivative and to face high risk and get high returns. Company proves to an option for the investors. Studying the performance of investing equity & derivative for few months considering their analysis. To get good return. To know how derivatives can be use for hedging. To know the outcome of Equity and Derivative. How to