The Promise and Limits of Financial Engineering in Emerging Markets

18 Pages Posted: 24 Apr 2000  

Claire A. Hill

University of Minnesota Law School

Abstract

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.

JEL Classification: F21, F34, G15, G32, K22

Suggested Citation

Hill, Claire A., The Promise and Limits of Financial Engineering in Emerging Markets. Financial Innovation and the Welfare of Nations, Kluwer Academic Press, May 2000. Available at SSRN: https://ssrn.com/abstract=213588 or http://dx.doi.org/10.2139/ssrn.213588

Claire Ariane Hill (Contact Author)

University of Minnesota Law School ( email )

229 19th Avenue South
Minneapolis, MN 55455
United States
612-624-6521 (Phone)

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