SOLUTION OF SOCIAL PROBLEMS IN
MANAGEMENT AND ECONOMY
International scientific-online conference
36
INFLUENCE OF INTERNATIONAL DERIVATIVES ON ECONOMIC
GROWTH: OPPORTUNITIES AND RISKS
Akhmadaliyeva Nikholakhon
Supervisor: PhD
Ziyodova Guliza
Student of TSUE:
https://doi.org/10.5281/zenodo.14636364
Abstract:
International derivatives are considered as an integral part of
current financial systems, as they help manage risks and promote economic
growth. This thesis explores how derivatives can enhance market efficiency, and
stability, coupled with attract investment in both developing and developed
countries. Both the benefits of derivatives such as risk management, increased
liquidity, and economic innovation and the risks of misuse, including speculation
and market disruptions rea discussed in the thesis. The evidence of examples
argues that tailored policies and infrastructure development can maximize the
benefits while minimizing the risks stemming from derivatives, positioning them
as a key driver of sustainable global economic growth.
Keywords:
International derivatives, financial risk management, market
efficiency, economic growth, speculation, regulations, liquidity, emerging
markets, global financial systems, sustainable development.
International derivatives deeply impact economies in different ways and
have already become an important part of financial systems. These financial
tools are widely used to make markets more efficient and stable and attract
investments, as they enable businesses to hedge against financial risks, such as
currency fluctuations and interest rate changes. Helping to deal with
uncertainties can support economic growth in many regions. However,
derivatives should be used carefully with proper rules to ensure economic
growth. If it were not for these regulations, they could create problems,
including but not limited to significant market disruptions and economic
challenges.
There are numerous benefits of derivatives, one of which is they help
manage financial risks. They hinder unpredictable changes in things like
exchange rates, commodity prices, or interest rates in both businesses and
governments, making decision-making and planning easier. For example,
companies like Coca-Cola use currency derivatives to manage exchange rate
risks. Coca-Cola, which generates significant revenue from international
markets, employs hedging strategies to protect against fluctuations in foreign
SOLUTION OF SOCIAL PROBLEMS IN
MANAGEMENT AND ECONOMY
International scientific-online conference
37
currencies, particularly in markets like Europe and Japan, where the value of the
dollar can dramatically impact profits.
This can also be used by farmers—such as those in India or the U.S. who use
commodity futures and options to hedge against price volatility in crops like
wheat or corn. By locking in prices in advance, they protect themselves from
unexpected market fluctuations that could otherwise threaten their income.
International derivatives not only reduce financial losses but also make
businesses and investors more confident to grow and invest. Eventually, this
confidence can lead to increased innovation, as businesses feel more secure in
exploring new markets and opportunities.
Additionally, derivatives can play a crucial role in keeping markets liquid. In
other words, buying and selling assets easily in the markets does not require big
changes in price. In the United States, for example, the economy is stabilized
with the help of derivatives that support trade and investments across borders.
This dynamic has a positive effect on other areas of the economy, particularly
manufacturing, coupled with technology, by promoting growth and creating
jobs. Small businesses and individual investors can benefit from increased
liquidity, democratizing access to financial tools that were once reserved for
large corporations and institutions.
As for emerging economies, derivatives can also be used to address specific
challenges and encourage economic development. In countries where natural
resources like oil, gas, and agriculture are considered as a main income source,
derivatives are used as an income stabilizer. For example, Saudi Arabia, an oil-
exporting nation, uses derivatives to hedge against fluctuations in global oil
prices, ensuring more stable revenue for its economy despite market volatility.
However, derivatives come with not only benefits but also risks. One of
which is speculation, where people use derivatives to bet on price movements
rather than managing risks. This can result in unstable markets and even
financial crises in extreme cases. The global crisis of 2008 is a clear example,
where the misuse of complex financial products like mortgage-backed securities
and credit default swaps led to the collapse of major financial institutions such
as Lehman Brothers. The resulting global financial meltdown caused widespread
economic problems, including a sharp decline in stock markets, massive
unemployment, and a severe credit crunch, impacting economies worldwide.
There are additional challenges for emerging markets to handle derivatives
effectively, such as a lack of proper infrastructure and trained professionals.
Without proper systems and knowledge, these markets are often vulnerable to
SOLUTION OF SOCIAL PROBLEMS IN
MANAGEMENT AND ECONOMY
International scientific-online conference
38
mistakes, leading to big financial losses for those who do not fully understand
the derivative risks. Poorly regulated derivatives not only impact individual
investors but also can create broader mistrust in financial markets, which
decelerates economic growth. Developing markets can benefit from derivatives
by only addressing these issues. Given that governments and financial
institutions should prioritize education and skill development of workers to
ensure they work responsibly.
When comparing developing and developed markets, it is clear that the
situations they face are totally different. As for developed ones, there are strong
regulations, advanced technology, and a visibly higher level of financial
conception among market participants, making it easier to use derivatives while
avoiding risks effectively. In contrast, emerging markets often find it hard to
fully benefit from derivatives as they lack these facilities. This comparison can
be solid evidence for the importance of tailored policies that create better
regulations by addressing the specific needs of each region. Additionally,
developed countries can help emerging ones to catch up and participate more
actively in the global financial system by sharing required expertise and
resources.
There are numerous implications policymakers can consider to ensure that
derivatives help rather than harm economies, such as creating effective rulers,
improving education, and building better infrastructure. Transparent markets
and the proper usage of derivatives can be secured by clear regulations. For
example, rules requiring detailed reporting of derivative positions and setting
limits on speculative activities can reduce risks. At the same time, financial
educational programs can contribute to better understanding of responsible
derivative usage for businesses and investors. This knowledge can be built by
attending workshops, training sessions, and promoting public awareness
campaigns. These programs should also address the specific needs of different
industries, ensuring that everyone from farmers to tech entrepreneurs can
benefit from derivatives.
Both institutional infrastructure and technological investments are crucial,
especially for emerging nations whose financial institutions are still in the early
stages of development. On the other hand, increasing the accessibility of
derivatives through international collaboration might assist in reducing risks in
cross-border transactions by establishing uniform laws, even though more
robust technology systems can guarantee efficient markets with lower
transaction costs. In addition to providing advice and resources to nations
SOLUTION OF SOCIAL PROBLEMS IN
MANAGEMENT AND ECONOMY
International scientific-online conference
39
seeking to develop their derivative markets, institutions such as the Bank for
International Settlements (BIS) and the International Monetary Fund (IMF) also
support knowledge-sharing programs that let nations benefit from each other's
achievements and failures.
In conclusion, international derivatives play a pivotal role in economic
enhancements. They can be a powerful tool for managing risks, improving
market efficiency, and attracting investments, which makes them essential in
today’s global economy. However, the downsides coming from the misuse of
derivatives should be taken into consideration. They can be avoided by the right
policies, education, and international collaboration, making derivatives an
influential driver of sustainable development. These steps can unlock the full
potential of derivatives in both developed and emerging markets, accelerating
growth, innovation, and resilience. As the global economy continues to evolve,
derivatives will undoubtedly play an even greater role, shaping the future of
financial markets and economic systems in ways we are only beginning to
understand.
