Covid-19 has been an eye-opener, as now it has provided an opportunity for change to seep in not just from the outer covers of government policies but also from what lies within. Reviving the Australian economy, which has faced a tremendous loss along with other major powers, would not be easy. However, with the potent combination of new rules, regulations, the ‘new normal’, the flaws exposed by COVID will and can be regulated and measured.
Anyone who participates actively in the derivatives market knows that the financial markets during the uproar of Covid-19 (March) saw major turbulence which led to high volatility and market liquidity all across the globe. The turbulence caused fluctuations which were mostly due to Covid-19 and to balance the economic recession, the government followed the rules of Keynesian economics and started injecting trillions of dollars into the revival of the economy.
While COVID 19 is a transformational opportunity for markets and government, many have used this to their benefit in restoring market liquidity with the help of government intervention. However, would derivative markets be the right choice for the revival of the Australian economy?
Impact of Covid-19 on Derivatives:
Derivatives and forex trading have been quite significant in the past days and now with the current scenario, it is making a significant comeback. With the help of the right strategies, Keynesian economics, government intervention, and thoughtful plans, the Australian economy can boom.
From people sitting idle at home to the loss of gambling sectors, derivatives and the future market has helped investors cope up with the economic crisis arising from the pandemic.
There have been many indirect and direct effects on the future market with sharp movements in the commodities and foreign exchange markets. With a record high of 83% in the S&P 500 VIX index, COVID-19 has surely pushed us into uncharted territory but also helped the government realise where they lag.
As the virus continues, so does the impact on the economy, and as still more market movements and theories have to be understood, there have been come practical disruptions in the derivatives trading market, such as-
However, as a result of COVID-19, the market closures, unscheduled holidays (i.e. China’s extended Lunar New Year holiday), quarantines and restrictions on people’s mobility and mandatory refinement could serve as a desired outcome for the defaulting party to challenge the valuation paid, deliveries and other notifications.
Covid-19 has put excessive pressure on the economies of the world, but with Keynesian economics basics, i.e, government intervention during the recession, the financial markets are moving towards a more stable and improved condition.
Recovery measures to be taken by the Australian economy:
While the impact of Covid-19 on the derivative market focuses on the if’s, but’s and why’s of the world commodities price fluctuations, there can be some easy measures which can help in the revival of the Australian economy.
History is our best teacher, with being the aid during the recession- the global crisis 2008 to being one of the deadliest things for the economies and businesses- Baring bank collapse in the ’90s, history shows us that if policies are not made with a clear head, derivatives trading in the wrong set of hands can be disastrous.
Financial derivatives have the capacity of creating a financial crisis and being the silver lining during the recession. All it needs is a clear-headed leadership, political support and new thinking, which will push the Australian economy to new heights. But this depends on how the government reacts to the changes in liquidity and volatility. As of now the responses by the Australian regime have been quick and thorough, but more is yet to come.
The CAINZ Digest is published by CAINZ, a student society affiliated with the Faculty of Business at the University of Melbourne. Opinions published are not necessarily those of the publishers, printers or editors. CAINZ and the University of Melbourne do not accept any responsibility for the accuracy of information contained in the publication.
Dahye is a Commerce student majoring in Finance and Accounting with passion in the past, current and future financial market, global economy and the development of businesses. Always interested in keeping up to date with current events and excited to share this with everyone through writing.
Neharika is a MoM accounts and finance student with a flair for writing, numbers, and research all coming under one roof. She is interested in global trends, and believes in joining the qualitative, quantitative aspects with her researching skills.
Hello! My name is Sarah Tu and I am a third year B.Com student majoring in Finance and Management. I am a bright, inquisitive and straightforward Melbourne girl, always looking for opportunities to learn, communicate and share.
Matthew is studying actuarial and finance. He is interested in global economic development and investing.