Financial Derivatives: The Concepts, Operations, and Impact on the Nigerian Economy

Background: In an economic sense, derivatives are often used for commodities, including oil, gasoline, silver, gold, iron ore, currencies, stocks, and bonds. The derivative is considered as a financial contract that derives its value from an underlying asset. The buyer of the asset agrees to purchase it on a specific date and at a particular price. In the past couple of decades, financial derivatives evolved, and this is not unrelated to the fundamental changes in the financial markets across the globe. Methods: This systematic review visited various relevant sites and synthesised literature from relevant publications. The write-up discussed the growth of financial derivatives, especially in the past two decades, the innovations in financial theory, changes in the foreign markets, and increased computerisation. Results: The outcome of this review has shown that since the inception of financial derivatives in the early 1970s, there are various instruments that have evolved and are considered critical. Some of these instruments include futures contracts, forward markets, options, swaps, and hybrids. Conclusion: Undeniably, the complexities of the derivatives market keep increasing and on a daily basis; the Nigerian economy is not an exception or spared. This review is critical and timely, hence the need for government officials, policymakers, financial regulators, and academia to effectively understand this fluidity in the global financial markets. Given the fluidity of the global economies and evolving nature of financial transactions in the global space, this write-up would help in sensitizing help policymakers and financial regulators when adopting significant legislative or regulatory changes regarding the country’s financial dealings in the global space.