Macroeconomics: The Global Economy and Financial System
ASSIGNMENT: Financial markets, derivatives and the financial crisis of 2007/08
Outcomes/Assessment Criteria Being Assessed:
- Financial markets and financial products
- The financial system and the regulatory framework
- identify and apply strategies to find appropriate solutions
- Select/design and apply appropriate methods/techniques
- Present and communicate appropriate findings
- Use critical reflection to evaluate own work and justify valid conclusions
- Take responsibility for managing and organising activities
- Demonstrate convergent/lateral/creative thinking
Specific Contextualisation
a) A range of derivatives such as:
- forward contracts
- futures
- options
- credit default swaps (CDSs)
- collateralized debt obligations (CDOs)
- forward exchange rates
can be used to manage risk for investors and firms engaged in international trade. However, they can also be used for purely speculative purposes. Explain the nature of these financial assets and how they might be used to manage risk and also used for speculative purposes.
b) Explain the role played by CDSs and CDOs in the financial crisis of MIMS.
References:
Part a) is straightforward and requires an explanation of what these financial assets are and how they are used by investors to manage risk and by speculators when taking positions in the financial markets.
For part b) of the assignment students can use specific institutions as case studies if they wish. American International Group (AIG); Union Bank of Switzerland (UBS); Lehman Brothers are three that come to mind. There is a wide range of material available on the internet.