Correlation between the use of derivatives products and the implementation of the monetary policy

Mircea Ciolpan and Anduena Firtat
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Anduena Firtat: University of Craiova

Finante - provocarile viitorului (Finance - Challenges of the Future), 2008, vol. 1, issue 7, 203-210

Abstract: In a developing and fluctuant world, derivatives help the investors to avoid risks and moreover to assume them when it is necesary. The trade of the derivatives contributes to the growth of liquidity of the assets’ market. For the banks, which traditionally avoid risks, this fact combined with low costs for communication and trading, lead to some potential risky investments. The materialization of monetary policy is based on the idea that the needs of the real economy are expressed through the bankimg system, and the changes of the monetary policy influence the evolution of the economy. In this way, the monetary authority has to promote a proper policy, which can lead to the achievement of its main objective – price stability. The use of derivatives made the central bank mission more difficult. The authorities have a difficult task in order to establish new methods, more powerful, for a better implementaton of the monetary policy. In a dynamic environment the equilibrium is not permanent; this is the reason why the central bank and the financial markets participants must prevent first, and then avoid the possible repairs.

Keywords: derivative; monetary policy; risk management; financial markets (search for similar items in EconPapers)
JEL-codes: E52 G20 G21 (search for similar items in EconPapers)
Date: 2008
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