1. GOVERNING GLOBAL DERIVATIVES
C. OLDANI

2. OUTLINE Introduction Measurement and accounting
Monetary Analysis and Policy
Fiscal Policy
Theory of Investment

3. Introduction
Derivatives are as old as finance; the first option is reported in the Holy Bible.
Today Chicago and London are the financial centers of derivatives trading.
World derivatives activity reached 10 times GDP.
Derivatives recipe for success: taylored on customers’ needs, are deregulated, highly liquid and flexible.

4. Measurement and Accounting
IAS n39 fair value: applied to derivatives in the balance sheet of firms, banks.Not for Govern’ts or public bodies (e.g. Regions or Cities).
Measured at notional amount (not turnover).
The fair value means that they can be assets - liabilities depending on the market value of contract (in-at or out of the money).
Tax timing options.

5. Measurement and Accounting
Derivatives: must know the risk!
Hedge funds: deregulated financial operators with extreme freedom and small transparency.
From the traffic light to the roundabout.

6. Monetary Analysis and Policy
Financial globalization and the spread of derivatives influence the money demand, and stability.
The toolbox of central banks should be updated.
Expectations management exercise

7. Monetary analysis and policy
Monetary aggregates
Interest rate channel
Money for speculative purpose
Money for precautionary motive of firms and banks

8. Monetary analysis and policy Taylor rule with impl
Monetary analysis and policy Taylor rule with impl.vol of options on interest rates

9. Fiscal policy For taxpayers: tax timing options
Public finance and moral hazard
Fiscal policy: incentive management

10. Fiscal policy Sovereign debt and derivatives
Crashes of states with derivatives: the O.C., Taranto.
GASB project to put derivatives in the balance sheet

11. Italy and Derivatives
After the modification of Constitution (devolution) public bodies are allowed to finance themselves the way they like.
Growing public debt, local and central.
Which is the rating of an Italian city?
Freedom or anarchy?

13. Theory of Investment
The interest rate is the price of money, the cost of public debt, and the cost of external financing for investment.
The analysis of the interest is fundamental for investments and capital.
Macroeconomic derivatives: hedging on future growth.

14. Theory of investment
Tobin’s Q: derivatives can be useful to compute the market value of assets.
Minsky FIH can be implemented with derivatives, providing encouraging results.
Energy and derivatives

15. Conclusion
After 2007 crisis, the role of derivatives and their deregulation has to be revisited.
Has the G20 the power-willingness to do that?
Money speaks at Washington.