25 Remolona 1993 states that the most successful exchange derivatives are those

25 remolona 1993 states that the most successful

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Remolona (1993), states that the most successful exchange derivatives are those which add liquidity to the underlying markets. Both studies complement each other by providing the understanding of cash inflows into economies with organized derivative markets as speculators are willing to provide liquidity by expecting to make some money of their risk exposure. This buttresses the necessity for a derivatives market in emerging economies especially. Fratzscher (2006) pinpoints the strong development of equity derivatives in Korea and India is a reflection of a robust operational and legal infrastructure backed up by an organized cash market. According to Jobst, both countries have well designed trading platforms, which provides access to both domestic and foreign institutional investors and reliable tax regimes which ensures the equitable treatment of cash and derivatives trade. Moreover, the study also shows that countries lagging have weak trading infrastructures, no universal market practices, shortcomings in relevant laws that create uncertainty about whether derivatives contracts can be enforced, bans on short selling and restrictions on investment by foreigners. Jobst (2007) provides some insight into the workings of the Asian emerging derivatives market and pitches its success on certain requisite conditions such as a legal framework backed by an organized cash market. 2.5 Conceptual Framework The Conceptual Framework is a graphical representation of the relationship in focus where the Legal/regulatory framework, Risk management and Information dissemination act as independent variables and influence the growth of the derivative markets. Each of these independent variables will be assessed to find to what extent it has influenced the operations of the market and whether there has been an improvement since the introduction of the derivative market caused by any of the factors. Independent variables Dependent variables 26 Risk management Hedging – risk transfer
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CHAPTER THREE RESEARCH METHODOLOGY 27 Legal/regulatory framework Licensing, trading and clearing rules. Registration and reporting, Accounting and taxation issues Customer protection rules, Capital and Collateral requirements Information Dissemination Level of available information on derivatives. Number of target audience. Level of access to derivative instruments by investors. Development of derivatives market Volume of trade in derivatives. Number of derivatives instruments. Number of participant
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