A binary option is a financial exotic option in which the payoff is either some fixed monetary amount or nothing at all. The two main types of binary options are the cash-or-nothing binary option and the asset-or-nothing binary option; the former pays some fixed amount of cash if the option expires in-the-money while the latter pays the value of the underlying security. They are called all-or-nothing options, digital options, fixed return options. While binary options may be used in theoretical asset pricing, they are prone to fraud in their applications and hence banned by regulators in many jurisdictions as a form of gambling. Many binary option outlets have been exposed as fraudulent; the U. S. FBI is investigating binary option scams throughout the world, the Israeli police have tied the industry to criminal syndicates; the European Securities and Markets Authority have banned retail binary options trading. ASIC considers binary options as a “high-risk” and “unpredictable” investment option.
The FBI estimates. The use of the names of famous and respectable people such as Richard Branson to encourage people to buy fake "investments" is frequent and increasing. Articles published in the Times of Israel newspaper explain the fraud in detail, using the experience of former insiders such as a job-seeker recruited by a fake binary options broker, told to "leave conscience at the door". Following an investigation by the Times of Israel, Israel's cabinet approved a ban on sale of binary options in June 2017, a law banning the products was approved by the Knesset in October 2017. On January 30, 2018, Facebook banned advertisements for binary options trading as well as for cryptocurrencies and initial coin offerings. Google and Twitter announced similar bans in the following weeks. Binary options "are based on a simple'yes' or'no' proposition: Will an underlying asset be above a certain price at a certain time?" Traders place wagers as to whether that will not happen. If a customer believes the price of an underlying asset will be above a certain price at a set time, the trader buys the binary option, but if he or she believes it will be below that price, they sell the option.
In the U. S. exchanges, the price of a binary is always under $100. Investopedia described the binary options trading process in the U. S. thus: binary may be trading at $42.50 and $44.50 at 1 p.m. If you buy the binary option right you will pay $44.50, if you decide to sell right you'll sell at $42.50. Let's assume you decide to buy at $44.50. If at 1:30 p.m. the price of gold is above $1,250, your option expires and it becomes worth $100. You make a profit of $100 - $44.50 = $55.50. This is called being "in the money." But if the price of gold is below $1,250 at 1:30 p.m. the option expires at $0. Therefore you lose the $44.50 invested. This is called being "out of the money." The bid and offer fluctuate. You can close your position at any time before expiry to lock in a reduce a loss. In the U. S. every binary option settles at $0, $100 if the bet is correct, 0 if it is not. In the online binary options industry, where the contracts are sold by a broker to a customer in an OTC manner, a different option pricing model is used.
Brokers sell binary options at a fixed price and offer some fixed percentage return in case of in-the-money settlement. Some brokers offer a sort of out-of-money reward to a losing customer. For example, with a win reward of 80%, out-of-money reward of 5%, the option price of $100, two scenarios are possible. In-the-money settlement pays back the option price of $100 and the reward of $80. In case of loss, the option price is not returned but the out-of-money reward of $5 is granted to the customer. On non-regulated platforms, client money is not kept in a trust account, as required by government financial regulation, transactions are not monitored by third parties in order to ensure fair play. Binary options are considered a form of gambling rather than investment because of their negative cumulative payout and because they are advertised as requiring little or no knowledge of the markets. Gordon Pape, writing in Forbes.com in 2010, called binary options websites "gambling sites and simple", said "this sort of thing can become addictive... no one, no matter how knowledgeable, can predict what a stock or commodity will do within a short time frame".
Pape observed that binary options are poor from a gambling standpoint as well because of the excessive "house edge". One online binary options site paid $71 for each successful $100 trade. "If you lose, you get back $15. Let's say you win 545 of them. Your profit is $38,695, but your 455 losses will cost you $38,675. In other words, you must win 54.5% of the time just to break even". The U. S. Commodity Futures Trading Commission warns that "some binary options Internet-based trading platforms may overstate the average return on investment by advertising a higher average return on investment than a customer should expect given the payout structure." In the Black–Scholes model, the price of the option can be found by the formulas below. In fact, the Black–Scholes formula for the price of a vanilla call option can be interpreted by decomposing a call option into an asset-or-nothing call option minus a cash-or-nothing call option, for a put – the binary options are easier to analyze, correspond to the two terms in the Black–Scholes formula.
In these, S is the initi
Financial crisis of 2007–2008
The financial crisis of 2007–2008 known as the global financial crisis and the 2008 financial crisis, is considered by many economists to have been the most serious financial crisis since the Great Depression of the 1930s. It began in 2007 with a crisis in the subprime mortgage market in the United States, developed into a full-blown international banking crisis with the collapse of the investment bank Lehman Brothers on September 15, 2008. Excessive risk-taking by banks such as Lehman Brothers helped to magnify the financial impact globally. Massive bail-outs of financial institutions and other palliative monetary and fiscal policies were employed to prevent a possible collapse of the world financial system; the crisis was nonetheless followed by the Great Recession. The European debt crisis, a crisis in the banking system of the European countries using the euro, followed later. In 2010, the Dodd–Frank Wall Street Reform and Consumer Protection Act was enacted in the US following the crisis to "promote the financial stability of the United States".
The Basel III capital and liquidity standards were adopted by countries around the world. Following is a timeline of major events during the financial crisis: February 20, 2007: The Dow Jones Industrial Average hit its peak level of 12,786. Existing home sales peaked this month and began to decline. April 2007: New Century, an American REIT specializing in sub-prime mortgages, filed for Chapter 11 bankruptcy protection; this propagated the sub-prime crisis, to banks around the world. August 9, 2007: BNP Paribas, a French investment bank, blocked withdrawals from two of its hedge funds – a clear sign that banks were refusing to do business with each other. August 2007: The Federal Open Market Committee began reducing the federal funds rate from its peak of 5.25% in response to worries about liquidity and confidence. December 12, 2007: The Federal Reserve instituted the Term Auction Facility to supply short-term credit to banks with sub-prime mortgages. February 13, 2008: The Economic Stimulus Act of 2008 was enacted, which included a tax rebate.
March 17, 2008: The Federal Reserve guaranteed Bear Stearns' bad loans to facilitate its acquisition by JPMorgan Chase. July 11, 2008: IndyMac failed. July 30, 2008: The Housing and Economic Recovery Act of 2008 was enacted. September 7, 2008: Fannie Mae and Freddie Mac were taken over by the federal government. September 15, 2008: Lehman Brothers went bankrupt after the Federal Reserve declined to guarantee its loans, causing the Dow Jones to drop 504 points, its worst decline in seven years; the same day, Bank of America purchased Merrill Lynch. September 16, 2008: The Federal Reserve took over American International Group; the Reserve Primary Fund "broke the buck" as a result of massive withdrawals from money market accounts. September 21, 2008: Goldman Sachs and Morgan Stanley converted themselves from investment banks to bank holding companies to increase their protection by the Federal Reserve. September 26, 2008: Washington Mutual went bankrupt after a bank run. September 29, 2008: The House of Representatives rejected the Emergency Economic Stabilization Act of 2008 instituting the $700 billion Troubled Asset Relief Program.
In response the Dow Jones dropped its largest single-day decline. October 3, 2008: Congress passed the Emergency Economic Stabilization Act of 2008. November 25, 2008: The Term Asset-Backed Securities Loan Facility was announced. December 16, 2008: The federal funds rate was lowered to zero percent. January 2009: The Big Three automobile manufacturers received a bailout from the TARP program. February 13, 2009: Congress approved the American Recovery and Reinvestment Act of 2009, a $787 billion economic stimulus package. March 6, 2009: The Dow Jones hit its lowest level of 6,443.27. The precipitating factor for the Financial Crisis of 2007–2008 was a high default rate in the United States subprime home mortgage sector – the bursting of the "subprime bubble." While the causes of the bubble are disputed, some or all of the following factors must have contributed. Low interest rates encouraged mortgage lending. Securitization. Many mortgages were bundled together and formed into new financial instruments called mortgage-backed securities, in a process known as securitization.
These bundles could be sold as low-risk securities because they were backed by credit default swaps insurance. Because mortgage lenders could pass these mortgages on in this way, they could and did adopt loose underwriting criteria. Lax regulation allowed predatory lending in the private sector after the federal government overrode anti-predatory state laws in 2004; the Community Reinvestment Act, a 1977 US federal law designed to help low- and moderate-income Americans get mortgage loans encouraged banks to grant mortgages to higher risk families. Reckless lending by, for example, Bank of America's Countrywide Financial unit, caused Fannie Mae and Freddie Mac to lose market share and to respond by lowering their own standards. Mortgage guarantees. Many of the subprime loans were bundled and sold accruing to the quasi-government agencies Fannie Mae and Freddie Mac; the implicit guarantee by the US federal government created a moral hazard and contributed to a glut of risky lending. The accumulation and subsequent high default rate of these subprime mortgages led to the financial crisis and the consequent damage to the world economy.
High mortgage approval rates led to a large pool of homebuyers. This appreciation in value led large numbers of homeowners to borrow against their homes as an apparent windfall; this "bubble" would be burst by a r
Jet fuel, aviation turbine fuel, or avtur, is a type of aviation fuel designed for use in aircraft powered by gas-turbine engines. It is colorless to straw-colored in appearance; the most used fuels for commercial aviation are Jet A and Jet A-1, which are produced to a standardized international specification. The only other jet fuel used in civilian turbine-engine powered aviation is Jet B, used for its enhanced cold-weather performance. Jet fuel is a mixture of a large number of different hydrocarbons; because the exact composition of jet fuel varies based on petroleum source, it is impossible to define jet fuel as a ratio of specific hydrocarbons. Jet fuel is therefore defined as a performance specification rather than a chemical compound. Furthermore, the range of molecular mass between hydrocarbons is defined by the requirements for the product, such as the freezing point or smoke point. Kerosene-type jet fuel has a carbon number distribution between about 8 and 16. Jet fuels are sometimes classified as naphtha-type.
Kerosene-type fuels include Jet A, Jet A-1, JP-5 and JP-8. Naphtha-type jet fuels, sometimes referred to as "wide-cut" jet fuel, include Jet B and JP-4. Fuel for piston-engine powered aircraft has a high volatility to improve its carburetion characteristics and high autoignition temperature to prevent preignition in high compression aircraft engines. Turbine engines can operate with a wide range of fuels because fuel is injected into the hot combustion chamber. Jet and gas turbine aircraft engines use lower cost fuels with higher flash points, which are less flammable and therefore safer to transport and handle; the first axial compressor jet engine in widespread production and combat service, the Junkers Jumo 004 used on the Messerschmitt Me 262A fighter and the Arado Ar 234B jet recon-bomber, burned either a special synthetic "J2" fuel or diesel fuel. Gasoline was a third option but unattractive due to high fuel consumption. Other fuels used were kerosene and gasoline mixtures. Most jet fuels in use since the end of World War II are kerosene-based.
Both British and American standards for jet fuels were first established at the end of World War II. British standards derived from standards for kerosene use for lamps—known as paraffin in the UK—whereas American standards derived from aviation gasoline practices. Over the subsequent years, details of specifications were adjusted, such as minimum freezing point, to balance performance requirements and availability of fuels. Low temperature freezing points reduce the availability of fuel. Higher flash point products required for use on aircraft carriers are more expensive to produce. In the United States, ASTM International produces standards for civilian fuel types, the U. S. Department of Defense produces standards for military use; the British Ministry of Defence establishes standards for both military jet fuels. For reasons of inter-operational ability and United States military standards are harmonized to a degree. In Russia and former Soviet Union countries, grades of jet fuels are covered by the State Standard number, or a Technical Condition number, with the principal grade available in Russia and members of the CIS being TS-1.
Jet A specification fuel has been used in the United States since the 1950s and is not available outside the United States and a few Canadian airports such as Toronto and Vancouver, whereas Jet A-1 is the standard specification fuel used in the rest of the world other than the former Soviet states where TS-1 is the most common standard. Both Jet A and Jet A-1 have a flash point higher than 38 °C, with an autoignition temperature of 210 °C; the primary difference is the lower freezing point of A-1: Jet A's is −40 °C Jet A-1's is −47 °C The other difference is the mandatory addition of an anti-static additive to Jet A-1. Jet A trucks, storage tanks, plumbing that carry Jet A are marked with a black sticker with "Jet A" in white printed on it, adjacent to another black stripe. Jet A-1 fuel must meet: DEF STAN 91-91, ASTM specification D1655, IATA Guidance Material, NATO Code F-35. Jet A fuel must reach ASTM specification D1655 Typical physical properties for Jet A / Jet A-1 Jet B is a fuel in the naphtha-kerosene region, used for its enhanced cold-weather performance.
However, Jet B's lighter composition makes it more dangerous to handle. For this reason, it is used, except in cold climates. A blend of 30% kerosene and 70% gasoline, it is known as wide-cut fuel, it has a low freezing point of −60 °C, a low flash point as well. It is used in some military aircraft, it is used in Northern Canada and sometimes Russia, because of its low freezing point. The DEF STAN 91-91 and ASTM D1655 specifications allow for certain additives to be added to jet fuel, including: Antioxidants to prevent gumming based on alkylated phenols, e.g. AO-30, AO-31, or AO-37. Biocides are to remediate microbial (i.e. bacterial a
Electricity is the set of physical phenomena associated with the presence and motion of matter that has a property of electric charge. In early days, electricity was considered as being not related to magnetism. On, many experimental results and the development of Maxwell's equations indicated that both electricity and magnetism are from a single phenomenon: electromagnetism. Various common phenomena are related to electricity, including lightning, static electricity, electric heating, electric discharges and many others; the presence of an electric charge, which can be either positive or negative, produces an electric field. The movement of electric charges produces a magnetic field; when a charge is placed in a location with a non-zero electric field, a force will act on it. The magnitude of this force is given by Coulomb's law. Thus, if that charge were to move, the electric field would be doing work on the electric charge, thus we can speak of electric potential at a certain point in space, equal to the work done by an external agent in carrying a unit of positive charge from an arbitrarily chosen reference point to that point without any acceleration and is measured in volts.
Electricity is at the heart of many modern technologies, being used for: electric power where electric current is used to energise equipment. Electrical phenomena have been studied since antiquity, though progress in theoretical understanding remained slow until the seventeenth and eighteenth centuries. Practical applications for electricity were few, it would not be until the late nineteenth century that electrical engineers were able to put it to industrial and residential use; the rapid expansion in electrical technology at this time transformed industry and society, becoming a driving force for the Second Industrial Revolution. Electricity's extraordinary versatility means it can be put to an limitless set of applications which include transport, lighting and computation. Electrical power is now the backbone of modern industrial society. Long before any knowledge of electricity existed, people were aware of shocks from electric fish. Ancient Egyptian texts dating from 2750 BCE referred to these fish as the "Thunderer of the Nile", described them as the "protectors" of all other fish.
Electric fish were again reported millennia by ancient Greek and Arabic naturalists and physicians. Several ancient writers, such as Pliny the Elder and Scribonius Largus, attested to the numbing effect of electric shocks delivered by catfish and electric rays, knew that such shocks could travel along conducting objects. Patients suffering from ailments such as gout or headache were directed to touch electric fish in the hope that the powerful jolt might cure them; the earliest and nearest approach to the discovery of the identity of lightning, electricity from any other source, is to be attributed to the Arabs, who before the 15th century had the Arabic word for lightning ra‘ad applied to the electric ray. Ancient cultures around the Mediterranean knew that certain objects, such as rods of amber, could be rubbed with cat's fur to attract light objects like feathers. Thales of Miletus made a series of observations on static electricity around 600 BCE, from which he believed that friction rendered amber magnetic, in contrast to minerals such as magnetite, which needed no rubbing.
Thales was incorrect in believing the attraction was due to a magnetic effect, but science would prove a link between magnetism and electricity. According to a controversial theory, the Parthians may have had knowledge of electroplating, based on the 1936 discovery of the Baghdad Battery, which resembles a galvanic cell, though it is uncertain whether the artifact was electrical in nature. Electricity would remain little more than an intellectual curiosity for millennia until 1600, when the English scientist William Gilbert wrote De Magnete, in which he made a careful study of electricity and magnetism, distinguishing the lodestone effect from static electricity produced by rubbing amber, he coined the New Latin word electricus to refer to the property of attracting small objects after being rubbed. This association gave rise to the English words "electric" and "electricity", which made their first appearance in print in Thomas Browne's Pseudodoxia Epidemica of 1646. Further work was conducted in the 17th and early 18th centuries by Otto von Guericke, Robert Boyle, Stephen Gray and C. F. du Fay.
In the 18th century, Benjamin Franklin conducted extensive research in electricity, selling his possessions to fund his work. In June 1752 he is reputed to have attached a metal key to the bottom of a dampened kite string and flown the kite in a storm-threatened sky. A succession of sparks jumping from the key to the back of his hand showed that lightning was indeed electrical in nature, he explained the paradoxical behavior of the Leyden jar as a device for storing large amounts of electrical charge in terms of electricity consisting of both positive and negative charges. In 1791, Luigi Galvani published his discovery of bioelectromagnetics, demonstrating that electricity was the medium by which neurons passed signals to the muscles. Alessandro Volta's battery, or voltaic pile, of 1800, made from alternating layers of zinc and copper, provided scientists with a more reliable source of electrical energy than the electrostatic machines used; the recognition of electromagnetism, the unity of electric
In finance, a derivative is a contract that derives its value from the performance of an underlying entity. This underlying entity can be an asset, index, or interest rate, is simply called the "underlying." Derivatives can be used for a number of purposes, including insuring against price movements, increasing exposure to price movements for speculation or getting access to otherwise hard-to-trade assets or markets. Some of the more common derivatives include forwards, options and variations of these such as synthetic collateralized debt obligations and credit default swaps. Most derivatives are traded over-the-counter or on an exchange such as the New York Stock Exchange, while most insurance contracts have developed into a separate industry. In the United States, after the financial crisis of 2007–2009, there has been increased pressure to move derivatives to trade on exchanges. Derivatives are one of the three main categories of financial instruments, the other two being stocks and debt.
The oldest example of a derivative in history, attested to by Aristotle, is thought to be a contract transaction of olives, entered into by ancient Greek philosopher Thales, who made a profit in the exchange. Bucket shops, outlawed a century ago, are a more recent historical example. Derivatives are contracts between two parties that specify conditions under which payments are to be made between the parties; the assets include commodities, bonds, interest rates and currencies, but they can be other derivatives, which adds another layer of complexity to proper valuation. The components of a firm's capital structure, e.g. bonds and stock, can be considered derivatives, more options, with the underlying being the firm's assets, but this is unusual outside of technical contexts. From the economic point of view, financial derivatives are cash flows, that are conditioned stochastically and discounted to present value; the market risk inherent in the underlying asset is attached to the financial derivative through contractual agreements and hence can be traded separately.
The underlying asset does not have to be acquired. Derivatives therefore allow the breakup of ownership and participation in the market value of an asset; this provides a considerable amount of freedom regarding the contract design. That contractual freedom allows derivative designers to modify the participation in the performance of the underlying asset arbitrarily. Thus, the participation in the market value of the underlying can be weaker, stronger, or implemented as inverse. Hence the market price risk of the underlying asset can be controlled in every situation. There are two groups of derivative contracts: the traded over-the-counter derivatives such as swaps that do not go through an exchange or other intermediary, exchange-traded derivatives that are traded through specialized derivatives exchanges or other exchanges. Derivatives are more common in the modern era. One of the oldest derivatives is rice futures, which have been traded on the Dojima Rice Exchange since the eighteenth century.
Derivatives are broadly categorized by the relationship between the underlying asset and the derivative. Derivatives may broadly be categorized as "lock" or "option" products. Lock products obligate the contractual parties to the terms over the life of the contract. Option products provide the buyer the right, but not the obligation to enter the contract under the terms specified. Derivatives can be used either for speculation; this distinction is important because the former is a prudent aspect of operations and financial management for many firms across many industries. Along with many other financial products and services, derivatives reform is an element of the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010; the Act delegated many rule-making details of regulatory oversight to the Commodity Futures Trading Commission and those details are not finalized nor implemented as of late 2012. To give an idea of the size of the derivative market, The Economist has reported that as of June 2011, the over-the-counter derivatives market amounted to $700 trillion, the size of the market traded on exchanges totaled an additional $83 trillion.
For the fourth quarter 2017 the European Securities Market Authority estimated the size of European derivatives market at a size of €660 trillion with 74 million outstanding contracts. However, these are "notional" values, some economists say that this value exaggerates the market value and the true credit risk faced by the parties involved. For example, in 2010, while the aggregate of OTC derivatives exceeded $600 trillion, the value of the market was estimated much lower, at $21 trillion; the credit risk equivalent of the derivative contracts was estimated at $3.3 trillion. Still, eve
A swap is a derivative in which two counterparties exchange cash flows of one party's financial instrument for those of the other party's financial instrument. The benefits in question depend on the type of financial instruments involved. For example, in the case of a swap involving two bonds, the benefits in question can be the periodic interest payments associated with such bonds. Two counterparties agree to exchange one stream of cash flows against another stream; these streams are called the legs of the swap. The swap agreement defines the dates when the cash flows are to be paid and the way they are accrued and calculated. At the time when the contract is initiated, at least one of these series of cash flows is determined by an uncertain variable such as a floating interest rate, foreign exchange rate, equity price, or commodity price; the cash flows are calculated over a notional principal amount. Contrary to a future, a forward or an option, the notional amount is not exchanged between counterparties.
Swaps can be in cash or collateral. Swaps can be used to hedge certain risks such as interest rate risk, or to speculate on changes in the expected direction of underlying prices. Swaps were first introduced to the public in 1981 when IBM and the World Bank entered into a swap agreement. Today, swaps are among the most traded financial contracts in the world: the total amount of interest rates and currency swaps outstanding was more than $348 trillion in 2010, according to Bank for International Settlements. Most swaps are traded over-the-counter, "tailor-made" for the counterparties; some types of swaps are exchanged on futures markets such as the Chicago Mercantile Exchange, the largest U. S. futures market, the Chicago Board Options Exchange, IntercontinentalExchange and Frankfurt-based Eurex AG. The Bank for International Settlements publishes statistics on the notional amounts outstanding in the OTC derivatives market. At the end of 2006, this was USD more than 8.5 times the 2006 gross world product.
However, since the cash flow generated by a swap is equal to an interest rate times that notional amount, the cash flow generated from swaps is a substantial fraction of but much less than the gross world product—which is a cash-flow measure. The majority of this was due to interest rate swaps; these split by currency as: Source: "The Global OTC Derivatives Market at end-December 2004", BIS, "OTC Derivatives Market Activity in the Second Half of 2006", BIS, Usually, at least one of the legs has a rate, variable. It can depend on the total return of a swap, an economic statistic, etc.. The most important criterion is that it comes from an independent third party, to avoid any conflict of interest. For instance, LIBOR is published by Intercontinental Exchange; as the International Finance in Practice box suggests, the market for currency swaps developed first. Today, the interest rate swap market is larger. Size is measured by notional principal, a reference amount of principal for determining interest payments.
The exhibit indicates that both markets have grown since 2000, but that the growth in interest rate swap has been by far more dramatic. The total amount of interest rate swaps outstanding increased from $48,768 billion at year-end 2000 to $349.2 trillion by year-end 2009, an increase of 616%. Total outstanding currency swaps increased 417%, from $3,194 billion at year-end 2000 to over $16.5 trillion by year-end 2009. A swap bank is a generic term to describe a financial institution that facilitates swaps between counterparties. A swap bank can be an international commercial bank, an investment bank, a merchant bank, or an independent operator. A swap bank serves as either swap dealer; as a broker, the swap bank does not assume any risk of the swap. The swap broker receives a commission for this service. Today, most swap banks serve as dealers or market makers; as a market maker, a swap bank is willing to accept either side of a currency swap, later on-sell it, or match it with a counterparty. In this capacity, the swap bank therefore assumes some risks.
The dealer capacity is more risky, the swap bank would receive a portion of the cash flows passed through it to compensate it for bearing this risk. The two primary reasons for a counterparty to use a currency swap are to obtain debt financing in the swapped currency at an interest cost reduction brought about through comparative advantages each counterparty has in its national capital market, and/or the benefit of hedging long-run exchange rate exposure; these reasons seem straightforward and difficult to argue with to the extent that name recognition is important in raising funds in the international bond market. The two primary reasons for swapping interest rates are to better match maturities of assets and liabilities and/or to obtain a cost savings via the quality spread differential. In an efficient market without barriers to capital flows, the cost-savings argument through a QSD is difficult to accept, it implies that an arbitrage opportunity exists because of some mispricing of the default risk premiums on different types of debt instruments.
If the QSD is one of the primary reasons for the existence of interest rate swaps, one would expect arbitrage to eliminate it over time and that the growth of the swap market would decrease. Thus, the arbitrage argument does not seem to have much merit. One must rely on an argument of market completeness for the existence and growth of interest rate swaps; that is, all types of debt instruments are not available for all borrowers. Thus, the interest rate swap
Energy markets are commodity markets that deal with the trade and supply of energy. Energy market may refer to an electricity market, but can refer to other sources of energy. Energy development is the result of a government creating an energy policy that encourages the development of an energy industry in a competitive manner; until the 1970s when energy markets underwent dramatic changes, they were characterised by monopoly-based organisational structures. Most of the world's petroleum reserves were controlled by the Seven Sisters. Circumstances changed in 1973 as the influence of OPEC grew and the repercussions of the 1973 oil crisis affected global energy markets. Energy markets have been liberalized in some countries. Regulators includes the Australian Energy Market Commission in Australia, the Energy Market Authority in Singapore, the Energy Community in Europe, replacing the South-East Europe Regional Energy Market and the Nordic energy market for Nordic countries. Members of the European Union are required to liberalize their energy markets.
Regulators seek to discourage volatility of prices, reform markets if needed, search for evidence of anti-competitive behavior such as the formation of a monopoly. Due to the increase in oil price since 2003 and the increase of speculation, energy markets are being reviewed and by 2008, several conferences were organized to address the energy market sentiments of petroleum importing nations. In Russia, the markets are being reformed by the introduction of harmonized and all-Russian consumer prices; the United States uses over four trillion kilowatt-hours per year in order to fulfill its energy needs. Data given by the United States Energy Information Administration shows a steady growth in energy usage dating back to 1990, which showed the United States used around 3 trillion kilowatt hours of energy that year. Traditionally, the energy sources used to fulfill the United States energy needs have been oil, nuclear, renewable energy, natural gas; the breakdown of each of these fuels as a percentage of the overall consumption in the year 1993, according to the data given by the EIA is as follows.
In the most recent year where data was analyzed, 2011, the breakdown was. These figures show a dramatic drop in energy from coal, a significant increase in both natural gas as well as renewable energy. According to the United States Geological Survey data from 2006, hydroelectric power accounted for most of the renewable energy production in the United States. However, increasing government funding and incentives have been drawing many companies towards the biofuel and solar energy production industries. In recent years, there has been a movement towards renewable and sustainable energy in the United States; this has been caused by many factors, including the threat of climate change, government funding, tax incentives, potential profits in the energy market of the United States. According to the most recent projections by the EIA out to the year 2040, the renewable energy industry will be growing from providing 13% of the power in the year 2011 to 16% in 2040; this is equivalent to 32% of the overall growth during this time period.
This large increase has the potential to be lucrative for companies wishing to tap into the renewable energy market in the United States. This movement towards renewable energy has been affected by the stability of the global market. Recent economic instability in countries in the Middle East and elsewhere has driven American companies to further develop American dependence on foreign sources of energy, such as oil; the long term projections by the United States Energy Information Administration for renewable energy capacity in the United States is sensitive to factors such as the cost of domestic oil and natural gas production and availability. The majority of the United States’ renewable energy production comes from hydroelectric power, solar power, wind power. According to the U. S. Department of Energy, the cost of wind power doubled between the years of 2002 to 2008. However, since the prices of wind power have declined by 1/3, on average. Various factors have been contributing to the decline in the cost of wind power, such as government subsidies, tax breaks, technological advancement, the cost of oil and natural gas.
Hydroelectric power has been the most predominant source of renewable energy for quite some time due to the fact that it has been proven to be reliable and has been in use for quite some time. This source of energy has provided the majority of renewable energy and has been a significant source of overall energy production in the United States; the problem with traditional hydroelectric power has been the requirement of damming rivers and other sources of water. The problem created by damming is that the natural environment of the area is disrupted due to the formation of a lake caused by the damming of the water source; this creates uproar by environmentalists and a large obstacle to clear before being able to build a hydroelectric plant. However, new forms of hydroelectric power that harness wave energy from the oceans have been in development in recent years. Although these power sources still need much development before they become economically viable, they do have potential to become significant sources of energy.
In recent years, wind energy and solar energy