Innovative Financial Instruments & Risk Management Policies: Misjudgment of Misfortunes

Abstract

A new light of hope has been experienced in the world’s financial markets in the recent past with the emergence of new products and services due to the interacting process of accelerating change of liberlisation and innovation. Needless to say, because of this effect, old restrictions between financial intermediaries have been distorted to a noticeable margin. With the widening of financial assets and liabilities for prospective beneficiaries and falling costs of financial intermediation, risk management tools are now being made significantly sophisticated. Accordingly, developing countries, like India, have found new ways and means to channelise domestic and international savings. Challenges encountered from the growth of capital markets towards economic and financial stability amply demonstrate the capacity of markets to react sharply when confronted with unexpected changes in economic conditions. At the micro-economic level, individual institutions have become more exposed to the consequences prevailing risk factors as because markets have become more interdependent. And at the macro-economic level, capital market liberalisation has been associated with continued or even increased instability in asset prices. So, broadening range of financial instruments, greater availability of risk management products and growing geographical integration of capital markets have largely fueled the emergence of new financial innovation with sharp reaction to confrontations of unexpected changes in economic conditions. At this backdrop, the present paper is an endeavor in addressing the driving financial innovation factors over the past two or three decades along with key features of emerging new financial landscape. Needless to say, sincere efforts would also be there to focus benefits from broadening range of financial instruments, the greater availability of risk management products and the growing geographical integration of capital markets.