This is an example of where complex financial instruments are useful, and how they provide value by existing, since oftentimes it just seems like pieces in a game. Weather derivatives allow...
This is an example of where complex financial instruments are useful, and how they provide value by existing, since oftentimes it just seems like pieces in a game. Weather derivatives allow businesses with significant exposure in any way to weather affects to hedge against negative effects - or benefit more by being resilient against them. Marketmakers for these products bring in value by providing liquidity to this niche market - which would be pretty low otherwise. This allows those businesses to smooth out their risk profile, which benefits everyone.
That being said, as 2008 showed, derivatives can be equally dangerous if they're built on shakey foundations.
This is an example of where complex financial instruments are useful, and how they provide value by existing, since oftentimes it just seems like pieces in a game. Weather derivatives allow businesses with significant exposure in any way to weather affects to hedge against negative effects - or benefit more by being resilient against them. Marketmakers for these products bring in value by providing liquidity to this niche market - which would be pretty low otherwise. This allows those businesses to smooth out their risk profile, which benefits everyone.
That being said, as 2008 showed, derivatives can be equally dangerous if they're built on shakey foundations.