The Potential of Derivatives Market in Bangladesh

Rahman, Saif; Hassan, M. Kabir
October 2011
Journal of Economic Cooperation & Development;2011, Vol. 32 Issue 4, p97
Academic Journal
The derivatives market has attained the highest growth of all financial market segments in recent years and has become the central contributor to the stability of the financial world. In recent years, derivative markets have grown by leaps and bounds in emerging economics and given the high level of economic and financial risks faced by market participants and investors in emerging countries, derivatives contribute to a country's economic development by making these risks manageable. Due to the recent catastrophic fall of capital market, rapidly declining FDI and scarcity of investment opportunities in an equity centric economy, investors of Bangladesh is crying out for an innovative and versatile financial product such as derivative securities for hedging and market expansion. In our paper, we have provided clear examples of how derivative securities can strengthen capital market of Bangladesh, both in terms of risk mitigation and creating alterative investment vehicles as well as reduce burden on our major import and export sectors. Furthermore, we have also looked into the prerequisite of setting up a derivative markets in Bangladesh and provided a clear roadmap. In view of recent turmoil in the equity markets, we need to be circumspect and foresighted in our approach; a standardized exchange traded derivative market with phase-by-phase introduction of product has been recommended.


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