Financial innovations can create both opportunities and risks from "summary" of Economics of Money, Banking and Financial Markets, Business School by Frederic S. Mishkin
Financial innovations have the potential to bring about significant opportunities for firms, investors, and the economy as a whole. These innovations can lead to the development of new financial products and services that cater to the evolving needs of market participants. For example, the introduction of new financial instruments such as derivatives can provide firms with the ability to hedge against risks more effectively, thereby reducing their overall exposure to market volatility. This can enhance the stability of financial markets and promote economic growth. However, along with opportunities, financial innovations also pose risks that need to be carefully managed. One of the primary risks associated with financial innovations is the potential for increased complexity in financial markets. As new products and services are introduced, market participants may struggle to fully understand the risks involved, leading to a higher likelihood of financial crises. For instance, the global financial crisis of 2007-2008 was partly attributed to the proliferation of compl...
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