Research On Financial Derivatives' Problem In Financial Crisis

1970s of last century, due to the collapse of the Bretton Woods system, the fixed exchange rate was replaced by floating exchange rate. The new exchange rate regime not only led to exchange rate instability, but also caused a dramatic impact on interest rates and the stock market. As to avoid exchange rate risks, the world's first financial derivatives contracts-Currency futures contracts emerged, opening up the entire financial derivative markets. Subsequently, the Government National Mortgage Association futures contracts and 90-day U.S. Treasury futures contracts appeared. The oil crisis in 1973 led the economic development of Western countries became very unstable. A large number of enterprises were in bankruptcy, unemployment was sharp increasing, prices was rising, inflation was worsening. Under such market environment, Investors urgently need a way to mitigate risk and preserve the assets. Then in February 1982, the U.S. Futures Exchange Kansas City (KCBT) launched its first stock-index futures-the Value Line Composite Index futures, which marked three categories-foreign currency futures, interest rate futures and stock index futures initially shaped. Following the announcement of the three major financial futures, the corresponding options, swaps were also coming up soon. To the late 20th century, the global financial derivatives market had been prosperous. According to Bank for International Settlements (BIS) statistical report, in mid-2004 to mid-2007, the global derivatives trading volume increased from 220 trillion U.S. dollars to 516 trillion U.S. dollars, nominal value equivalent to an annual rate of increase of 33%. Undeniably,As an important part of the financial markets, financial derivative market not only can effectively circumvent the systemic risks of the market to meet the diverse investment needs of investors, but also has a price discovery and asset allocation and other functions, which becoming more and more important in the international financial markets.However, since the 1990s, there were several loss events which triggered by financial derivatives trading in the world.In particular, the United States in 2008 originated in the global financial crisis, making financial derivatives, especially OTC derivatives had become the focus of debate from domestic and international markets.Throughout history, even in the face of any kinds of questions, financial derivatives have never stopped the development. With the continuous development of financial globalization, the world's financial markets are becoming increasingly closer and closer, the transmission speed of financial risks faster and faster, endangering is also growing. Fluctuations in interest rate and liberalization in exchange rate makes a country's financial assets and foreign currency assets in great risks. In order to avoid these risks and conform to the internal needs of economic development, many countries vigorously started to develop their own financial derivatives market.In this international environment, How can China develop its own financial derivatives market is a far-reaching issues. Since 2008, a number of china enterprises invested in derivatives led to huge losses, these loss events are worthy of our reflection. The issues about "Chinese enterprises have the qualifications and ability to participate in investments in financial derivatives", "The introduction of domestic financial derivatives market was ripe", "How to develop the domestic financial derivatives market" etc. became a hot topic on China's capital market.Based on the above research background, this paper is structured as follows: The first chapter introduce the research background and significance, literature review, methodology, research ideas and paper'structural arrangements, as well as the contribution of the paper; The second chapter describes the definition and characteristics of financial deribatives, as well as the "dual character" of financial derivatives on the economic performance;Chapter three introduce the development of financial crisis, and analyze the negative effects of derivatives in the financial crisis,.Then further analyze the root causes of the risks of financial derivatives. Chapter four is the case studies.Reflecting the problem when China's enterprises invest in financial derivatives; The fifth chapter is the conclusions, make reference recommendations on China's financial derivatives.