The Promise and Limits of Financial Engineering in Emerging Markets
Claire A. Hill
University of Minnesota, Twin Cities - School of Law
Financial Innovation and the Welfare of Nations, Kluwer Academic Press, May 2000
This paper considers why quality enhancement is sometimes, but not always, available for emerging markets financial instruments. It concludes that sometimes, but not always, economies of scope will permit quality enhancement to be provided at a cost lower than the associated benefit. These economies of scope are available when political risk is below a certain level; if political risk is, or is perceived to be, at or above that level, quality enhancement will not be available, except on terms likely not to be worthwhile for an emerging markets firm. More broadly, the increment of quality enhancement that can be exploited is limited. However, financial engineering has shown some promise in increasing the exploitable increment.
Number of Pages in PDF File: 18
JEL Classification: F21, F34, G15, G32, K22Accepted Paper Series
Date posted: April 24, 2000
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