The recent disasters in the global banking system and the ensuing
fallout in the derivatives markets fundamentally changed the way
market participants use FX derivatives. The crippling widespread
disappearance of liquidity and leverage as well as the
over-regulation that many doom sayers predicted has not
materialised; instead, market participants are refocusing on the
core uses of derivatives that built the industry. Concurrently,
there are greatly increased efforts at addressing systematic
problems with efficiency and operational risk. In addition,
regulators are preparing sweeping reforms to the OTC derivatives
markets on both sides of the Atlantic and FX derivatives are in
danger of being caught up in these reforms.
Over the past decade, structured products, in which FX (and other
asset class) derivatives have been used to create ever more
complex and often highly tailored risk profiles in bonds and
other investment vehicles, have become the driving force of
revenue for many derivatives dealers. Over-the-counter
derivatives remain the most effective and useful vehicles for
hedging a critical commercial risk.
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