The Role Financial Derivatives Play in the United States Banking Industry
Holton, Jeffrey M.
MetadataShow full item record
Currently in the United States there is a large debate over the use of financial derivatives in the banking industry. As of now 98% of all financial service firms are using some form of derivatives and most of them are using their positions to hedge some form of price or credit risk. This paper will analyze the current role derivatives play in the United States banking industry as well as its major market participants. The purpose is to present and explain all the types of derivative contracts available to banks and what types of positions banks are holding in the derivatives market. Furthermore, this paper will discuss how the derivatives market has developed over time. In recent years there have been some major struggles in the banking sector due to derivatives trading. However, these struggles should be blamed on the way the derivative contracts were used and not the derivatives themselves. The United States derivative market is an essential tool for banks to hedge against specific risks, such as price, or credit risk.