Derivative Market in Pakistan



Many decisions are full of risks; some managers’ feel like leading their companies is like on a high wire act while others feel like to be ill at ease considering the decisions of taking the levels and depth of respective risk.   The opportunities to manage such risks are well-versed by many in business. The dexterous managers are very much well-versed in comprehending the risk levels for investment portfolio. The derivatives are the financial tools for financial engineering as they are used to lower the risk or to invest to gain the leverage.

Derivatives are been primarily used for hedging and risk mitigating purposes.   However, sometimes it is complicated to know whether hedging actually occurs keeping in view the complexity of option contracts.   A sagacious investor may believe his assets are diversified by two different derivatives contracts that he made in accordance to mitigate the risk but often this does not happen and his expectations are not materialized.  

Financial globalization smooths the progress of greater diversification of investment and enables risk to be transferred across national financial systems through using derivatives instruments. The resulting development in allocation of risks has made overall capital markets more efficient, while the accessibility of derivatives has augmented liquidity in the underlying cash markets.

The recent global financial meltdown has also laid its effects on the Pakistan’s’ financial markets and thus explores an important aspect which is that the financial markets need a complete understanding when dealing with Financial Derivatives.

In Pakistan, the investors are not very indulged into derivative businesses and thus they got immense confusion about how and when to use the derivative tools. Since we know that any puzzlement regarding the use of the various tools and techniques of Financial Derivatives can lead to a disaster with mammoth negative...