Necessity of the Establishment of a Financial Derivatives Market in Bangladesh

Abstract

Abstract:Derivativeinstruments have been a feature of modern financial markets for several decades. They play a pivotal role in managing the risk of underlying securities such as bonds, equity, equity indices, currency, and short-term interest rate asset or liability positions. With the development of Bangladesh's market economy, it now becomes very essential to establish a financial derivativemarket in the country.In our article, it is has been tried to explain in detail the theoretical framework of various types of derivative and their potential usage in strengthening capital market, capital structure of commercial banks, against the fluctuation of major import(petroleum) and export(RMG) sectors, and thus turning Bangladesh economy into a strong global one. In the last part of our study, some recommendations were given suggesting phase by phase establishment of financial derivative market are included.

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“…Li Tian (2005) in his article discusses some fundamental factor that indicated that financial stability and economic growth could occur by establishing derivative markets. Like him, Rahman and Das (2015) also give In the above results, we can see that there is increasing trend of derivative markets of six country (Australia, Canada, Hong Kong, India, Japan, and US). We see that whether it is exchange traded or OTC there annual turnover most of the time increase.…”

“…There are many researcher said about reduced volatility by derivative market. According to Rahman and Das (2015), there are many researcher believe that derivative market is the risk-shifting tool so that establishment of derivative market in Bangladesh have a greater positive impact on capital market. Reduction of volatility of capital market, monetary market stability are the advantages of derivative markets.…”

“…The US Federal Open Market Committee moved to straightforward state its target for federal funding rate, a policy that encourages the increase of derivatives in federal fund rates after 1994. There are many financial crises occur in 1990s, which are often conducted by an acute expansion of corporate bankruptcy, greatly expanding the need of worldwide investors for hedging in opposition to credit risk (Rahman and Das, 2015). This paper aims to show the positive scenario of establishing derivative market in Bangladesh.…”

https://www.asianinstituteofresearch.org/JEBarchives/Does-Bangladesh-Need-to-be-Established-Derivatives-Markets%3F

“…Chart 3 shows that the annual turnover of derivatives market on NSE was Rs0.024 trillion in 2000-01 that was increased by Rs292 trillion in 2010-2011. Annual turnover of derivative market then increased Rs648 trillion in 2015-2016compared to 2010-2011. In 2018 was the derivative turnover trillion that is greater than previous years.…”