How to embed inclusive policy markers and financial sustainability characteristics into the derivatives contracts?
About the Author
PhD in Management (Specialty Finance): Financial derivative: Promises of regulation and modest measures implemented.
The trend is now known in what could be called the debt economy. This situation is serious because it calls into question not only the economic balances, but also the sovereignty and real independence of the States. This profound change would lead to the contemporary transformation of the global financial system because of the emergence of stateless capitalism to which often aims the achievement of its goals of profit maximization and the search for fortune. This phenomenon is today associated with all the financial and technological innovations implemented a means of accumulation of wealth.
In concrete terms, stateless capital has created more wealth through financial transactions and transactions by any type of asset. Financial assets are securities or contracts, most of which are transferable and negotiable in a financial market, which confer income or a capital gain on its holder. There are many different types, from the simplest: equities, bonds, to the most complex: SWAPS, Futures, FORWARDS, CDS, CDO, etc.
The operation of derivative contracts:
It is then intended for operators who wish to protect it against adverse price developments. It seeks to contribute to effective risk management within the financial system and not to amplify those risks. The prices of financial assets are determined by the expectations of stakeholders who may be subject to mimetic behaviour and totally disconnected from fundamentals. The strong evolution of the prices of derivative contracts leads to the development of speculative behaviour. High price volatility is a source of uncertainty that leads to economic and financial consequences as it cannot be controlled and difficult to anticipate these derivative contracts are regularly singled out as dangerous instruments of specialization reinforcing financial instability and risk. They are seen as pure speculative tools to reinforce the emergence of more aggressive and highly offensive strategies. These strategies are complex and allow the implementation of risk hedging operations, yet there are no or some traditional insurance policies. Thus, the existence of strategies is largely reprehensible because of the underlying and the major risk borne by the real sphere. Therefore, the use of derivative contracts to hedge specific risks and to obtain returns. But they therefore create, the accumulation of errors and losses that risk disrupting the volatility and stability of financial markets that exacerbate the market’s systemic risk.
The functioning of the market today is also considered as the «casino» that would encourage destabilizing speculation that could lead to a systemic collapse when speculation represents the behavior of agents within the market. On the other hand, the derivative market favours the intervention of rational investors who buy when the price goes down and sell when the price goes up. The growth in the number participating therefore has a stabilizing effect on the price by improving liquidity. This liquidity facilitates the transfer of risk, which is the target of multiple attacks on their effect, which triggered the crisis that led to contemporary financial instability caused by the global dysfunction of the financial system, particularly the disconnection of the relationship between finance and the economy, since the growth and financial regime, which is unstable and highly subject to speculation, has disrupted the world economy and has profoundly challenged its imbalances, its modes of operation and growth prospects. This disconnection is responsible for the development of the global imbalance, that is, the accumulation of wealth among investors on the one hand, and underdevelopment in the continents on the other.
In this context, this situation leads to disastrous consequences of economic liberalism on peoples. These consequences are manifested through the lack of education, housing, hunger, access to clean water, unemployment and mismanagement of resources or even a so-called deafness of the world.
These social and health disasters that the vast majority of the inhabitants of our planet live cruelly and daily are essentially the result of political choices marked by the logic of exploitation and domination: Hence the notion of the capitalist system is characterized by the domination and exploitation of the bourgeoisie. It is also based on the postulate of shareholders that must be directed in their personal interests for the accumulation of fortunes and the circulation of capital, which thus open opportunities to inequality and financial change, which would lead to the drift of finance (finance is not sustainable) which is
characterized by the deviation from their conventional roles.
Therefore, unfortunately, the relationship between finance and the economy is interconnected because of the current obscure (unclear) financial policy system that would lead to the transformation of the global financial system. So the main problem for most poorer countries is the lack of high-yield investment and the lack of access to sufficiently profitable markets.
In addition, disasters such as drought, Wars, typhoons and volcano eruptions increase the stress of financial markets with the misuse of the poor financial markets by governments and by donors in my opinion much added to the severity and persistence of these problems. Our vision is to start trying to solve the problems of low-income countries using inclusive policies, it seemed clear.
Fortunately, several experts are mastering the miseries of finance to understand the causes of these failures and to learn from them will perhaps improve the results of sustainable finance projects and programs in the future.
Integration of inclusive policy:
On the one hand, the integration of inclusive policy emphasizes the results of processes for sustainable development with a clearly defined theoretical framework and identified indicators that are the procedures and transformative dimension of participation. This policy is intended to help people include in the economic system.
As part of the inclusive policy, sustainable finance is about changing practices, increasing transparency and facilitating consideration of sustainability issues from financial instruments.
So, the key issues of sustainable finance for financial markets, financial stability and investor protection. It deals with financial products and services to help low-income populations. In other words, sustainable finance is now a structural trend in the sector. Several regulations focused by players in the management of derivative contracts.
Most of us thought that managing derivative contract with regulatory restrictions was the best way to help poor people to provide a solution to disasters, to increase production, accelerate technical progress and encourage productive investment. Given that derivatives contracts allowed to collect large sums of money because of speculation. They were easy to follow the movement and be for sustainable development to address poverty and equality.
This approach is based on the principle of organising and regulating the derivative market such as the “offering” of long-term derivative contracts, investor behaviour, lowering transaction costs, the introduction of non-assisted financial services and how rigorous policies affect the performance of financial markets. These measures focus on the vitality and sustainability of finance. Similarly, strategies to develop financial markets, should emphasize cooperation and participation between rich and poor countries to achieve social equality from the distribution of resources and the importance of mobilizing capital in a simple and clear way.
However, there is no practical method to overcome the fundamental characteristics of financial transactions and to direct investment operations towards the poor with a low interest rate. This development project pushes intermediaries to lend for targeted activities, and obliges borrowers undertake the activities required to change an unfavourable economic environment.
In my opinion, in order to achieve the objective of ensuring sustainable finance, I propose a few ideas:
*Control all derivative transactions and transactions in the financial market.
* Encourage transparency of derivative contract transactions.
*Reduce the transaction costs of derivative contracts.
*Investor protection with restrictive regulations.
* Facilitate the participation of poor countries in financial market operations.
*Mobilize deposits for poor countries.
* Encourage long-term investment projects with a low interest rate.
* Avoid liberal account lines and outlaw financial activities (in the shadows).