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WP/09/ Exotic Derivatives Losses in Emerging Markets: Questions of Suitability, Concerns for Stability Randall Dodd 2009 international Monetary Fund WP/09/ IMF Working Paper Monetary and Capital Markets Department Exotic Derivatives Losses in Emerging Markets: Questions of Suitability, Concerns for Stability Prepared by Randall Dodd Authorized for distribution by _____ July 2009 Abstract This paper explores a pattern of Exotic Derivatives transactions across Emerging markets that led to substantial Losses amongst non- financial firms in the tradable goods sector. The Derivatives contracts were called different names in different countries, but the underlying economic structures followed a similar pattern. The risk exposures obtained through these contracts resulted in direct Losses that roiled foreign exchange markets by the surge of local currency selling to cover the short positions in Exotic Derivatives and by the confusion and fear arising from not knowing who held these Derivatives , how large the positions were and how large the Losses might be.
3 I. INTRODUCTION An international pattern of exotic derivatives1 trading appears to have helped transmit the financial crisis from the U.S. and the European Union to many different emerging market
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