An Introduction To Derivatives In Nigeria
The Nigerian market has witnessed a recent rise in the use of derivatives especially in transactions involving foreign counterparties.
- 1.INTRODUCTION
The Nigerian market has witnessed a recent rise in the use of derivatives especially in transactions involving foreign counterparties. Derivatives are routinely utilised in many countries such as the United Kingdom and the United States of America. Other countries such as Germany, France and South Africa also operate thriving derivatives markets. In the UK for example, pension funds have in the past years increased their use of derivatives, 2 something that could be emulated in Nigeria. The global derivatives market is vast and estimated at more than $1.2 quadrillion. 3 Some market analysts estimate the derivatives market at more than 10 times the size of the total world gross domestic product GDP . 4Notwithstanding the frailties of the Nigerian capital market, the advent of derivatives has sparked a significant positive response from both local and foreign investors seeking to conduct businesses within Nigeria or with Nigerians. This signals a new opportunity for Nigeria, as derivatives are extremely flexible due to their contractual nature and they can be used to accomplish a broad array of risk management objectives, if properly utilised.
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