Working Paper 69 - Fostering the Use of Financial Risk Management Products in Developing Countries

Through the principle of asset and liability matching, the introduction of financialrisk management products in developing countries, will permit the institutions ofthese countries to hedge their market risk with other counterparties in the market.The use of financial risk management products will also permit these countries andtheir institutions to match their borrowings terms to suit their debt service capacity,and their investment terms to match their cash inflow and outflow requirements,and to preserve their assets. However, in order to adequately benefit from theintroduction of the financial risk management products and to protect institutionsagainst risks involved in the use of these products, developing countries mustestablish related mitigation measures, including the introduction of necessary internalcontrol mechanism, application of relevant accounting standards, and putting inplace required legal documentation. An international financial institution like theAfrican Development Bank is perfectly situated to intermediate and facilitate theeffective implementation of a financial risk management products programme forits borrowers in the continent.