Proceedings

financial savings, efficiency of investments allocation, entities’ solvability,
decentralization of property and distribution of wealth, as well as by new and
developing entities’ access to share based financing (Stoica et al., 2006, p. 30).
Capital represents a different type of commodity, but one that is essential for
emerging countries’ economic development, capital accumulation, be it by internal
development, direct foreign investments and/or help being received from outside,
being necessary in order to bring economic ratios to the level that is required through
development plans. In order to reach these objectives a series of institutional settings
must be considered so that they also enhance capital accumulation. By this we refer to
commercial and savings banks, investment banks and other financial institutions,
insurance companies, pension funds and not least the securities’ market (Enthoven,
1973, p. 196). The development of the capital market within developed economies
still represents a crucial element when it comes to stimulating capital formation
(Riahi-Belkaoui, 2002, p. 26), having the ability to generate a part of the capital that is
necessary for local or foreign entities and end encouraging investments.
Furthermore, trade literature documents those markets for derivatives’ trading play an
important role when it comes to the development of a country’s financial structure by
creating some connections between cash markets, hedgers and speculators. The
increase in the use of derivatives offers alternatives for risk management and
facilitates cash flows towards emerging economies, while also creating the context to
enhance systematic risk and negative effects during financial crisis periods (Lien and
Zhang, 2008). We therefore consider it important to acknowledge the fact that
derivatives can play both positive and negative roles. A series of studies (such as
Kregel, 1998, Dodd, 2000, IMF, 2002) demonstrate the importance of derivatives
when it comes to hedging and risk management, but also the related possibility to
increase risk within financial systems by generating an unforeseeable dynamic in
crisis development, while also offering channels for crisis propagation.
Derivatives dissociate risks being associated with classic trading instruments beyond
countries’ boundaries, regardless if it is market risk, credit risk, liquidity risk, interest
rate risk or currency risk. More precisely, derivatives should transfer these risks from
investors who do not want them towards those with a better capacity to manage them
(Lien and Zhang, 2008, p. 40). Therefore, handling investments at international level
becomes more attractive by generating opportunities to develop cash flows as well as
to diversify investment portfolio. Still, we consider that risk enhancement, using
derivatives with the purpose of avoiding prudential regulations and manipulating
capital adequacy requirements should not only be looked at as simple side effects. We
can even asses that inadequate use of derivatives creates the fundament that might
lead to financial crisis unleashing. This is due to the fact that derivatives accelerate
cash outflows during crises and therefore increase cash flows volatility at international
level, further amplifying the crisis by making its evolution unforeseeable.
The generally accepted main function of derivatives market is that of facilitating risk
transfer between economic agents (Lien and Zhang, 2008, p. 48), the diverse shapes
being taken by derivative financial instruments offering packages with certain
payment patterns, redistributing and reallocating the risk associated with future cash
flows between market participants. By contracting a certain position on the futures
market that is actually opposed to the one on the spot market, compensating losses
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