9.

0 CONTEMPORARY ISSUES AND EMERGING TRENDS

9.1 What Is Cryptocurrency?
A cryptocurrency is a digital or virtual currency that is secured by cryptography, which
makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are
decentralized networks based on blockchain technology—a distributed ledger enforced by a
disparate network of computers. A defining feature of cryptocurrencies is that they are
generally not issued by any central authority, rendering them theoretically immune to
government interference or manipulation.
Understanding Cryptocurrencies
Cryptocurrencies are systems that allow for secure payments online which are denominated
in terms of virtual "tokens," which are represented by ledger entries internal to the system.
"Crypto" refers to the various encryption algorithms and cryptographic techniques that
safeguard these entries, such as elliptical curve encryption, public-private key pairs, and
hashing functions.
Types of Cryptocurrency
The first blockchain-based cryptocurrency was Bitcoin, which still remains the most popular
and most valuable. Today, there are thousands of alternate cryptocurrencies with various
functions and specifications. Some of these are clones or forks of Bitcoin, while others are
new currencies that were built from scratch.
Bitcoin was launched in 2009 by an individual or group known by the pseudonym "Satoshi
Nakamoto."1 As of November 2021, there were over 18.8 million bitcoins in circulation with
a total market cap of around $1.2 trillion, with the figure updating frequently. Only 21 million
bitcoins will ever exist, preventing both inflation and manipulation.2
Some of the competing cryptocurrencies spawned by Bitcoin’s success, known as "altcoins,"
include Solana, Litecoin, Ethereum, Cardano, and EOS. By November 2021, the aggregate
value of all the cryptocurrencies in existence is over $2.4 trillion—Bitcoin currently
represents approximately 42% of the total value.3
Advantages of using cryptocurrency
Using cryptocurrency could offer opportunities for some businesses. The benefits may
include:
 A cryptocurrency transaction is generally a quick and straightforward process. For
example, Bitcoins can be transferred from one digital wallet to another, using only a
smartphone or computer.
 Every cryptocurrency transaction is recorded in a public list called the blockchain,
which is the technology that enables its existence. This makes it possible to trace the
history of Bitcoins to stop people from spending coins they do not own, making
copies or undoing transactions.
 Blockchain aims to cut out intermediaries, such as banks and online marketplaces,
which means there are no payment processing fees.

ELOHIMBTC ADVANCED FINANCIAL MANAGEMENT @ 2021 1

  Cyptocurrency payments are becoming more widely used, amongst large
organisations, and in sectors including fashion and pharmaceuticals.
Disadvantages of using cryptocurrency
There are some business disadvantages to using cryptocurrency:
 It is possible to lose your virtual wallet or delete your currency. There have also
been thefts from websites that let you store your cryptocurrency remotely.
 The value of cryptocurrencies such as Bitcoins can change significantly, so some
people don't feel it is safe to turn 'real' money into Bitcoins.
 The cryptocurrency market is not regulated by the Financial Conduct Authority
(FCA) so there are no rules in place to protect your business.
 If companies or consumers move to a new cryptocurrency from you or stop using
digital currencies entirely, it could lose value and become worthless.
 Cryptocurrency exchanges are vulnerable to cyber attacks, which could lead to an
irreparable loss of your investment.
 Cryptocurrency can be vulnerable to scams. Scammers often use platforms like
Facebook, Instagram and Twitter to trick people into these investments. If you suspect
you’ve been targeted, it's important to report this to Action Fraud as soon as
possible. Read more on how to report a cyber crime

9.2 Blockchain technology

Blockchain is defined as a ledger of decentralized data that is securely shared. Blockchain
technology enables a collective group of select participants to share data. With blockchain
cloud services, transactional data from multiple sources can be easily collected, integrated,
and shared. Data is broken up into shared blocks that are chained together with unique
identifiers in the form of cryptographic hashes.
Blockchain provides data integrity with a single source of truth, eliminating data duplication
and increasing security.
In a blockchain system, fraud and data tampering are prevented because data can’t be altered
without the permission of a quorum of the parties. A blockchain ledger can be shared, but not
altered. If someone tries to alter data, all participants will be alerted and will know who make
the attempt.
How does blockchain technology work?
Think of a blockchain as a historical record of transactions. Each block is “chained” to the
previous block in a sequence, and is immutably recorded across a peer-to-peer network.
Cryptographic trust and assurance technology applies a unique identifier—or digital
fingerprint—to each transaction.

ELOHIMBTC ADVANCED FINANCIAL MANAGEMENT @ 2021 2

Trust, accountability, transparency, and security are forged into the chain. This enables many
types of organizations and trading partners to access and share data, a phenomenon known as
third-party, consensus-based trust.
All participants maintain an encrypted record of every transaction within a decentralized,
highly scalable, and resilient recording mechanism that cannot be repudiated. Blockchain
does not require any additional overhead or intermediaries. Having a decentralized, single
source of truth reduces the cost of executing trusted business interactions among parties that
may not fully trust each other. In a permissioned blockchain, used by most enterprises,
participants are authorized to participate in the network, and each participant maintains an
encrypted record of every transaction.
Any company or group of companies that needs a secure, real-time, shareable record of
transactions can benefit from this unique technology. There is no single location where
everything is stored, leading to better security and availability, with no central point of
vulnerability.
To learn more about blockchain, its underlying technology, and use cases, here are some
important definitions.
 Decentralized trust:
The key reason that organizations use blockchain technology, instead of other data stores, is
to provide a guarantee of data integrity without relying on a central authority. This is called
decentralized trust through reliable data.
 Blockchain blocks:
The name blockchain comes from the fact that the data is stored in blocks, and each block is
connected to the previous block, making up a chainlike structure. With blockchain
technology, you can only add (append) new blocks to a blockchain. You can’t modify or
delete any block after it gets added to the blockchain.
 Consensus algorithms:
Algorithms that enforce the rules within a blockchain system. Once the participating parties
set up rules for the blockchain, the consensus algorithm ensures that those rules are followed.
 Blockchain nodes:
Blockchain blocks of data are stored on nodes—the storage units that keep the data in sync or
up to date. Any node can quickly determine if any block has changed since it was added.
When a new, full node joins the blockchain network, it downloads a copy of all the blocks
currently on the chain. After the new node synchronizes with the other nodes and has the
latest blockchain version, it can receive any new blocks, just like other nodes.
There are two main types of blockchain nodes:
 Full nodes store a complete copy of the blockchain.
 Lightweight nodes only store the most recent blocks, and can request older blocks
when users need them.

ELOHIMBTC ADVANCED FINANCIAL MANAGEMENT @ 2021 3

Three types of blockchain
 Public blockchain.
A public, or permission-less, blockchain network is one where anyone can participate without
restrictions. Most types of cryptocurrencies run on a public blockchain that is governed by
rules or consensus algorithms.
 Permissioned or private blockchain.
A private, or permissioned, blockchain allows organizations to set controls on who can access
blockchain data. Only users who are granted permissions can access specific sets of data.
Oracle Blockchain Platform is a permissioned blockchain.
 Federated or consortium blockchain.
A blockchain network where the consensus process (mining process) is closely controlled by
a preselected set of nodes or by a preselected number of stakeholders.
Benefits of blockchain—The business value
The use of blockchain technology is expected to significantly increase over the next few
years. This game-changing technology is considered both innovative and disruptive because
blockchain will change existing business processes with streamlined efficiency, reliability,
and security.
Blockchain technology delivers specific business benefits that help companies in the
following ways:
 Establishes trust among parties doing business together by offering reliable, shared
data
 Eliminates siloed data by integrating data into one system through a distributed ledger
shared within a network that permissioned parties can access
 Offers a high level of security for data
 Reduces the need for third-party intermediaries
 Creates real-time, tamper-evident records that can be shared among all participants
 Allows participants to ensure the authenticity and integrity of products placed into the
stream of commerce
 Enables seamless tracking and tracing of goods and services across the supply chain
 Provides food safety with Oracle Blockchain Platform

9.3 Crowdfunding
Crowdfunding is when businesses, organizations or individuals fund a business without
traditional means with small donations from many people. By receiving the necessary boost
to cash flow, these ventures can get off the ground or launch new projects. Most of these

ELOHIMBTC ADVANCED FINANCIAL MANAGEMENT @ 2021 4

campaigns happen via internet platforms, have set time frames for when money can be raised
and disclose specific monetary goals.
Types of crowdfunding
While there are four types of crowdfunding, each receives money from interested donors.
Here's a breakdown of each one:0
 Rewards: This is when donors receive something in return for their donations. The
rewards vary by the size of the donation, which incentivizes higher contributions.
Based on how much money participants give to a campaign, they may receive a T-
shirt, the product or service – often at a discounted rate.

 Equity: While some crowdfunding campaigns don't allow backers to own a portion of

the company they're supporting, equity-based crowdfunding allows small businesses
and startups to give away a portion of their business in exchange for funding. These
donations are a type of investment, where participants receive shares in the business
based on how much money they contribute.

He listed five key challenges that plague reward-based crowdfunding campaigns:

1. Finding and implementing a cost-effective marketing strategy before, during and after
the campaign

2. Crafting the right messaging in the campaign description that will drive interest in the
product or service

3. Developing an informative and exciting campaign video that explains the product and
its benefits (the main challenge being that it's expensive to create a really good and
high-impact video)

4. Creating and planning the rewards program to strategically maximize the ROI 

5. Finding the most effective and cost-efficient fulfillment method for the rewards

9.4 Digitization of financial transactions

What Is a Digital Transaction?
A digital transaction is a seamless system involving one or more participants, where
transactions are effected without the need for cash. The digital transaction involves a
constantly evolving way of doing things where financial technology (fintech)
companies collaborate with various sectors of the economy for the purpose of meeting the
increasingly sophisticated demands of the growing tech-savvy users.
 A digital transaction is a process by which transactions take place without the use of
cash.

ELOHIMBTC ADVANCED FINANCIAL MANAGEMENT @ 2021 5

  A digital transaction involves the collaboration of several parties including large
financial firms and a number of sectors within the economy.
 Examples include swiping a debit card at a store, paying for a purchase online, or
transferring money from an app to your bank account.
 These kinds of transactions have become increasingly prevalent and necessary as
consumers move from a cash-powered economy to a digital one.

Advantages of digital financial transaction

i. Digital transactions improve service delivery

In high-income countries, most safety net programs – such as social security or subsidies for
the poor – are delivered digitally. In low-income countries, they are commonly made in cash.
Using cash creates enormous costs. For example, governments must spend money bringing
truckloads of paper currency to remote areas; these trucks also need to be insured and
protected by armed guards
ii. Digital transactions help prevent people from falling into poverty
Most development interventions aim to help people escape poverty. But escaping poverty is
no guarantee of not falling back in.  Every year millions of people fall into poverty due to
unexpected shocks such as natural disasters, high medical bills, or sudden unemployment. In
poor countries, safety nets are often absent, so people rely on their social networks for
emergency funds.
iii. Digital transactions help people build savings 
People are more likely to build savings when they are paid directly into accounts instead of in
cash, in part because the money is protected from theft, loans to family members, and the
temptation to spend.  This money can be invested in educational and business opportunities
and has implications for the World Bank's work on employment and poverty reduction
iv. Digital transactions require comprehensive consumer protections
Digital financial services can offer many development benefits, but there are also risks which
need to be managed. Adults need the digital skills and confidence to engage with technology.

9.5 what is Big Data in Finance?

Big data in finance refers to large, diverse (structured and unstructured) and complex sets of
data that can be used to provide solutions to long-standing business challenges for financial
services and banking companies around the world. The term is no longer just confined to the
realm of technology but is now considered a business imperative. It is increasingly leveraged
by financial services firms to transform their processes, their organizations, and the entire
industry.

How Big Data Is Revolutionizing Finance

The exponential growth of technology and increasing data generation are fundamentally
transforming the way industries and individual businesses are operating. The financial
services sector, by nature, is considered one of the most data-intensive sectors, representing a
unique opportunity to process, analyze, and leverage the data in useful ways.
Traditionally number crunching was done by humans, and decisions were made based on
inferences drawn from calculated risks and trends. However, in recent times, such

ELOHIMBTC ADVANCED FINANCIAL MANAGEMENT @ 2021 6

functionality is usurped by computers. As a result, the market for big data technology in
finance offers inordinate potential and is one of the most promising.
 
1. Real-time stock market insights
Big data is completely revolutionizing how the stock markets worldwide are functioning and
how investors are making their investment decisions. Machine learning – the practice of
using computer algorithms to find patterns in massive amounts of data – is enabling
computers to make accurate predictions and human-like decisions when fed data, executing
trades at rapid speeds and frequencies.
The business archetype monitors stock trends in real-time. It incorporates the best possible
prices, allowing analysts to make smart decisions and reduce manual errors due to behavioral
influences and biases. In conjunction with big data, algorithmic trading is thus resulting in
highly optimized insights for traders to maximize their portfolio returns.
 
2. Big data analytics in financial models
Big data analytics presents an exciting opportunity to improve predictive modeling to better
estimate the rates of return and outcomes on investments. Access to big data and improved
algorithmic understanding results in more precise predictions and the ability to mitigate the
inherent risks of financial trading effectively.
 
3. Customer analytics
Today, customers are at the heart of the business around which data insights, operations,
technology, and systems revolve. Thus, big data initiatives underway by banking and
financial markets companies focus on customer analytics to provide better service to
customers.
Companies are trying to understand customer needs and preferences to anticipate future
behaviors, generate sales leads, take advantage of new channels and technologies, enhance
their products, and improve customer satisfaction.
Thus, by effectively cultivating meaningful relationships with their customers and improving
their ability to anticipate customer preferences, financial markets organizations can deliver
new customer-centric products and services to seize market opportunities quickly.
For example, the Oversea-Chinese Banking Corporation (OCBC) analyzed huge amounts of
historical customer data to determine individual customer preferences to design an event-
based marketing strategy. The strategy focused on a large volume of coordinated,
personalized marketing communications across multiple channels, including email, text
messages, ATMs, call centers, etc.
 
4. Risk management and fraud detection
Financial organizations use big data to mitigate operational risk and combat fraud while
significantly alleviating information asymmetry problems and achieving regulatory and
compliance objectives.
Banks can access real-time data, which can be potentially helpful in identifying fraudulent
activities. For example, if two transactions are made through the same credit card within a
short time gap in different cities, the bank can immediately notify the cardholder of security
threats and even block such transactions.

ELOHIMBTC ADVANCED FINANCIAL MANAGEMENT @ 2021 7

In addition, in the case of insurance, the insurance company can access data from social
media, past claims, criminal records, telephonic conversations, etc., beyond the claim details
while processing a claim.  If it finds anything suspicious, it can flag the claim for further
investigation.
To tackle fraud effectively, Alibaba built a fraud risk monitoring and management system
based on real-time big data processing. It identifies bad transactions and captures fraud
signals by analyzing huge amounts of data of user behaviors in real-time using machine
learning.
 
Big Data Challenges Facing the Banking and Finance Industry
 
1. Meeting regulatory compliance
Financial organizations must fulfill the Fundamental Review of the Trading Book (FRTB)
stringent regulatory requirements – developed by the Basel Committee on Banking
Supervision (BCBS) – that govern access to critical data and demand accelerated reporting.
 
2. Data privacy
Data privacy is another major concern tied to the implementation of cloud computing
technologies. Companies are worried about putting proprietary information in the cloud, and
though some have created private cloud networks, such projects can be costly.
 
3. Data silos
The inability to connect data across department and organizational silos is now considered a
major business intelligence challenge, leading to complicated analytics and standing in the
way of big data initiatives

9.6 Islamic finance

Islamic finance rests on the application of Islamic law, or Shariah, whose primary sources are
the Qur'an and the sayings and practice of the Prophet Muhammad. Shariah, and very much
in the context of Islamic finance, emphasizes justice and partnership.
The main principles of Islamic finance are that:
 Wealth must be generated from legitimate trade and asset-based investment. (The use
of money for the purposes of making money is expressly forbidden.)
 Investment should also have a social and an ethical benefit to wider society beyond
pure return.
 Risk should be shared.
 All harmful activities (haram) should be avoided.
The prohibitions
The following activities are prohibited:
 Charging and receiving interest (riba). The idea of a lender making a straight interest
charge, irrespective of how the underlying assets fare, transgresses the concepts of

ELOHIMBTC ADVANCED FINANCIAL MANAGEMENT @ 2021 8

 risk sharing, partnership and justice. It represents the money itself being used to make
money. It also prohibits investment in companies that have too much borrowing
(typically defined as having debt totalling more than 33% of the firm’s average stock
market value over the last 12 months).
 Investments in businesses dealing with alcohol, gambling, drugs, pork, pornography
or anything else that the Shariah considers unlawful or undesirable (haram).
 Uncertainty, where transactions involve speculation, or extreme risk. This is seen as
being akin to gambling. This prohibition, for example, would rule out speculating on
the futures and options markets. Mutual insurance (which relates to uncertainty) is
permitted if it is related to reasonable, unavoidable business risk. It is based upon the
principle of shared responsibility for shared financial security, and that members
contribute to a mutual fund, not for profit, but in case one of the members suffers
misfortune.
 Uncertainty about the subject matter and terms of contracts – this includes a
prohibition on selling something that one does not own. There are special financial
techniques available for contracting to manufacture a product for a customer. This is
necessary because the product does not exist, and therefore cannot be owned, before it
is made. A manufacturer can promise to produce a specific product under certain
agreed specifications at a determined price and on a fixed date. Specifically, in this
case, the risk taken is by a bank which would commission the manufacture and sell
the goods on to a customer at a reasonable profit for undertaking this risk. Once again
the bank is exposed to considerable risk. Avoiding contractual risk in this way, means
that transactions have to be explicitly defined from the outset. Therefore, complex
derivative instruments and conventional short sales or sales on margin are prohibited
under Islamic finance.
The permitted
As mentioned above, the receipt of interest is not allowed under Shariah. Therefore, when
Islamic banks provide finance they must earn their profits by other means. This can be
through a profit-share relating to the assets in which the finance is invested, or can be via a
fee earned by the bank for services provided. The essential feature of Shariah is that when
commercial loans are made, the lender must share in the risk. If this is not so then any amount
received over the principal of the loan will be regarded as interest.
There are a number of Islamic financial instruments which can provide Shariah-compliant
finance:
 Murabaha is a form of trade credit for asset acquisition that avoids the payment of
interest. Instead, the bank buys the item and then sells it on to the customer on a
deferred basis at a price that includes an agreed mark-up for profit. The mark-up is
fixed in advance and cannot be increased, even if the client does not take the goods
within the time agreed in the contract. Payment can be made by instalments. The bank
is thus exposed to business risk because if its customer does not take the goods, no
increase in the mark- up is allowed and the goods, belonging to the bank, might fall in
value.

ELOHIMBTC ADVANCED FINANCIAL MANAGEMENT @ 2021 9

  Ijara  is a lease finance agreement whereby the bank buys an item for a customer and
then leases it back over a specific period at an agreed amount. Ownership of the asset
remains with the lessor bank, which will seek to recover the capital cost of the
equipment plus a profit margin out of the rentals payable.
 Mudaraba is essentially like equity finance in which the bank and the customer share
any profits. The bank will provide the capital, and the borrower, using their expertise
and knowledge, will invest the capital. Profits will be shared according to the finance
agreement, but as with equity finance there is no certainty that there will ever be any
profits, nor is there certainty that the capital will ever be recovered. This exposes the
bank to considerable investment risk. In practice, most Islamic banks use this is as a
form of investment product on the liability side of their statement of financial
position, whereby the investor or customer (as provider of capital) deposits funds with
the bank, and it is the bank that acts as an investment manager (managing the funds).
 Musharaka is a joint venture or investment partnership between two parties. Both
parties provide capital towards the financing of projects and both parties share the
profits in agreed proportions. This allows both parties to be rewarded for their supply
of capital and managerial skills. Losses would normally be shared on the basis of the
equity originally contributed to the venture. Because both parties are closely involved
with the ongoing project management, banks do not often use Musharaka transactions
as they prefer to be more ‘hands off’.
 Sukuk is debt finance. A conventional, non-Islamic loan note is a simple debt, and the
debt holder's return for providing capital to the bond issuer takes the form of interest.
Islamic bonds, or sukuk, cannot bear interest. So that the sukuk are Shariah-compliant,
the sukuk holders must have a proprietary interest in the assets which are being
financed. The sukuk holders’ return for providing finance is a share of the income
generated by the assets. Most sukuk, are ‘asset-based’, not ‘asset-backed’, giving
investors ownership of the cash flows but not of the assets themselves. Asset-based is
obviously more risky than asset backed in the event of a default.

There are a number of ways of structuring sukuk, the most common of which are partnership
(Musharaka) or lease (Ijara) structures. Typically, an issuer of the sukuk would acquire
property and the property will generally be leased to tenants to generate income. The sukuk,
or certificates, are issued by the issuer to the sukuk holders, who thereby acquire a
proprietary interest in the assets of the issuer. The issuer collects the income and distributes it
to the sukuk holders. This entitlement to a share of the income generated by the assets can
make the arrangement Shariah compliant.
The cash flows under some of the approaches described above might be the same as they
would have been for the standard western practice paying of interest on loan finance.
However, the key difference is that the rate of return is based on the asset transaction and not
based on interest on money loaned. The difference is in the approach and not necessarily on
the financial impact. In Islamic finance the intention is to avoid injustice, asymmetric risk and
moral hazard (where the party who causes a problem does not suffer its consequences), and
unfair enrichment at the expense of another party.

ELOHIMBTC ADVANCED FINANCIAL MANAGEMENT @ 2021 10

Advocates of Islamic finance claim that it avoided much of the recent financial turmoil
because of its prohibitions on speculation and uncertainty, and its emphasis on risk sharing
and justice. That does not mean, of course, that the system is free from all risk (nothing is),
but if you are more exposed to a risk you are likely to behave more prudently.
The Shariah board
The Shariah board is a key part of an Islamic financial institution. It has the responsibility for
ensuring that all products and services offered by that institution are compliant with the
principle

9.7 Behavioral Finance

Behavioral finance is the study of the effects of psychology on investors and financial
markets. It focuses on explaining why investors often appear to lack self-control, act against
their own best interest, and make decisions based on personal biases instead of facts
Financial behavioral biases
There is a multitude of self-defeating or counterproductive behaviors that bring human beings
down. Financial behaviorists call these biases. Here are some of the most common.
Anchoring bias
Anchoring is our tendency to estimate worth or value based on whatever numbers we have
access to. For instance, people with a lot of money who mainly associate with other high-net-
worth individuals are likely to overestimate the cost of everyday things. Case in point: The
famous line by "Arrested Development" character Lucille Bluth: "I mean, it's one banana,
Michael. What could it cost, ten dollars?"
The disposition effect
The disposition effect gets its name from a 1985 research paper, "The Disposition to Sell
Winners Too Early and Ride Losers Too Long: Theory and Evidence." Its core tenet: "People
dislike incurring losses much more than they enjoy making gains," as authors Meir Statman
and Hersh Shefrin wrote.
The disposition effect in a nutshell explains why even experienced investors mistime their
investment moves. If a stock's going up, we get anxious and tend to lock in the value too
quickly by selling. At the same time, we are too slow to cut our losses on dogs, keeping our
losers in hopes that they'll turn the corner. But usually, they don't, and we lose even more.
Mental accounting
Money is fungible - that is, interchangeable; all funds are the same, regardless of where they
come from or are used for. Yet, in a variety of ways we treat some kinds of money differently
- assigning it different values or classifications. This is called mental accounting, a term
coined by the behavioral economist Richard H. Thaler. According to Thayer , "Putting labels
on money has a long history and serves a purpose . . . it starts with a sensible reason but then
people take it to places that don't make any sense."

ELOHIMBTC ADVANCED FINANCIAL MANAGEMENT @ 2021 11

Herd behavior
You've probably heard of herd mentality - a tendency to follow and copy what others are
doing. In the behavioral finance context, it refers to mimicking what other investors or the
market overall is doing, without a rhyme or reason of your own. Throughout financial
history, herd behavior has been behind many a speculative frenzy in the stock market, like the
dotcom bubble of the late 1990s - and the cause of many stock market crashes and panics.

9.8 Derivative markets in developing countries

Financial derivatives are commonly used for managing various financial risk exposures,
including price, foreign exchange, interest rate, and credit risks. By allowing investors to
unbundle and transfer these risks, derivatives contribute to a more efficient allocation of
capital, facilitate cross-border capital flows, and create more opportunities for portfolio
diversification. Thus, financial derivatives are essential for the development of efficient
capital markets
Despite rapid growth over the past several years, emerging market derivatives account for
only 1 percent of the total outstanding notionals in global derivatives markets. Local
derivatives markets in emerging economies differ greatly in their sizes, both in absolute terms
and relative to cash markets
The most common problems that constrain the development of local derivatives
markets are
(1) relatively underdeveloped markets for underlying instruments;
(2) weak/inadequate legal and market infrastructure, and
(3) restrictions on the use of derivatives by local and foreign entities.
Derivatives used in developing countries
a) Currency Derivatives
Most of the currency derivatives trading around the world takes place in the over-the-counter
(OTC) markets, with foreign exchange swaps accounting for more than two-thirds of the
turnover. 
b) Fixed-Income Derivatives
In contrast to recent trends in global currency derivatives market, the global fixed-income
derivatives market continued to expand steadily over the past few years, with interest rate
swaps (IRS) being the largest and the fastest growing market segment
c) Equity Derivatives
Compared to currency and fixed-income derivatives, the equity-based derivative products
represent a much smaller part of the global market, with the bulk of activity concentrated at
the organized exchanges. This reflects in part the diminishing role of local equity markets as
a source of funding for local entities

ELOHIMBTC ADVANCED FINANCIAL MANAGEMENT @ 2021 12

 d) Credit Derivatives
Although the credit derivatives market is still a small part of the global derivatives market, it
remains one of the fastest-growing segments notwithstanding several major credit events that
occurred during the past few years

ELOHIMBTC ADVANCED FINANCIAL MANAGEMENT @ 2021 13