ABSTRACT
In the preceding chapters, I concentrated on the fiscal, monetary and institutional analysis of derivatives. Fiscal and monetary analyses underline the effects on short-run interest rates (setting and variation), which is the price of money, and the return or cost on public debt. In this chapter, I look at other effects of derivatives on the interest rate, by considering the investment decision. Investment is the seed of capitalism; capital accumulation is influenced by the availability of information, of means of financing, and by the efficiency of trading. Derivatives are instruments that contribute to complete the market, increase investment opportunities, speed up the monetary transmission mechanism, and hedge risks. Hedging and risk management practices are strategic in the globalised financial system, and the ability to gauge information is of great importance for the investment decision. The investment decision is influenced by market expectations, and derivatives have proven to be able to gauge them. I shall then consider an industry characterized by a structural lack of investments: the energy and oil industry. In considering the role of investments in the macro-economy, I move my attention to the Tobin’s Q approach, where the firm’s evaluation of assets is the key variable and is market based. Since financial markets are intrinsically unstable and not very adherent to the perfect market hypothesis, I move from the Minsky approach and consider the stabilizing role that can be played by derivatives under certain circumstances.
