In the last two decades, the fastest growing global financial markets have been futures and swaps. Apart from the currency markets, these are now the largest markets in the world. Like banking and securities, trading in financial derivatives is also distanceless and borderless. Financial speculators play an important role in the trading of financial derivatives. They keep buying and selling the contracts, depending on their perception of movements on the market.
Rumours play an important role in decision making.
Thus derivatives tend to be very volatile and risk prone. With the globalisation of these markets, any major loss can have immediate world-wide repercussions. Similar incidents have also occurred in the recent past, giving rise to apprehension that financial derivatives trading could seriously jeopardise the global financial system. A bond can be described as a loan agreement by which a borrower agrees to pay the bond holder a certain amount of money at a certain time in the future. The buyer of the bond, who is essentially lending money to the issuer has to have confidence that the bond will be paid back at some time in the future, along with the agreed amount of interest.