Duffie 2007 argue that the growth and economic efficiency of derivatives

Duffie 2007 argue that the growth and economic

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Duffie (2007) argue that the growth and economic efficiency of derivatives industry, both in developed and emerging sub-Sahara market, rely on international harmonization of accounting standards based on fair – market valuation. Effective accounting disclosure provides information that is crucial to investment decisions and corporate governance. Derivatives pose special challenges to effective accounting disclosure. The fair market values of some types of derivatives can be difficult to estimate because of reliance on complex mathematical models, whose empirical relevance or inputs are often difficult to validate. This has been especially the case for structured credit products that are exposed to the degree of correlation of default of different borrowers. Moreover, a derivative contract can pack a lot of economic exposure into a contract that has little or no market value when written. Falconbridge (2007) argues that proximity is determined not only by physical geography, but also by time zone. A time zone convenient for meeting or phoning customers-or the firm’s overseas trading desks facilitates personal interactions and increases efficiency. London’s has advantageous time zone over other cities. It is easier to be global from London (for Asian, Africa and US time zones).One can catch Asian close and work through the US open 17
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(obvious but not to be discounted!).He further noted that “most global correlation books are run out of London (time –zone reasons).London also has time-zone advantages with respect to the Europe, including the fast-growing countries of Eastern Europe. According to Green and Edward (2004), the primary legal uncertainty associated with derivatives in U.S. had been over provisions of the Commodities Exchange Act (CEA), pursuant to which the CFTC arguably possesses exclusive jurisdiction over transactions involving contracts of sale of a commodity for future delivery i.e. future contracts as well as options on such contracts. On the other hand, a security was subject to SEC jurisdiction, and thus a regulatory regime that was completely different in structure and philosophy. Poon (2003), when considering positive co-location externalities, emphasized the focus on banking services in the literature exploring the growth of international financial centres. A related literature on the emergence of “world cities,” however, places a broader emphasis on the joint location of various knowledge-related activities, such as legal services, accounting, corporate headquarters, political, educational, and cultural functions, and of course financial services. Rantisi (2002) emphasized the role of clusters of professional services (manifested in professional associations such as those for law, advertising, and accounting) in explaining regional economic development through collective learning. Proximity to customers is important as location determines the ease with which a dealer or investment banker can meet with hedge –fund and corporate clients in order to structure appropriate derivatives strategies or products.
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