Thursday, May 10, 2007

Balls

Richard Murphy apparently doesn't understand the point of derivatives.

As for derivative traders, we simply don’t need them. Gambling isn’t smart.

Derivatives (a financial instrument whose value is derived from an underlying asset) are not gambling. They are largely used now not for speculative purposes but for risk abatement. It is, as Tim says, a transfer of risk from those less able to bear it, such as farmers, to financial institutions who are able to. The derivatives market creates stability and increases liquidity. It also provides a lot of jobs (much of the work of the City is bound up in this - the derivatives market is the fastest growing part of the financial sector). Ultimately, gambling or not, as DK says the derivatives market is smart.
So who is this 'we'? Who is decrying traders as unnecessary?
Richard Murphy (48) is a chartered accountant.
Ah.

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