Finance 320: Questions on Finance

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1. What are the key financial innovations that were developed during the 1980's. This is open-ended so there can be many answers. There are a myriad of financial innovations that were created throughout the 1980s were the result of the proliferation of credit instruments, types of securities, interest rates and rapid adoption of technologies that provided for greater accuracy and speed of trading. The five predominant catalysts of financial innovations during the 1980s including increased accuracy and speed of moving debt-based securities and aggregated investments in real-time from one asset classification to another; greater availability of analytics for measuring and managing risk; more effective data extraction analysis tools for gaining insights into very large data sets not available before; and the creation of more streamlined approaches to managing transactions as well (Dufey, Giddy, 1981) . These five factors are most responsible for securities innovations including pay-in-kind bonds, inflation-indexed bonds, convertible and exchange bonds specifically designed to mitigate risk while controlling short sales of debt equities they were tied to, in addition to the fine-tuning of credit default swaps and interest rate swaps meant to drive down the overall costs and risk of transaction while increasing potential returns (Marquis, Cunningham, 1990). These and other innovations that occurred during the 1980s were also designed to assuage or mitigate the exceptional
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