Reply #19: 600 Trillion Notional Value - Notional values and actual dollar values ...

[slipslidingaway]

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=103&topic_id=351988&mesg_id=352021

From February 2000

"Update Time...In fact, quite timely, really. Surely with the volatility in the bond market these days, it's high time we checked in on those wacky money center banks and their highly flammable derivatives exposure. All sarcasm aside, the reason we continue to update you each quarter on these numbers is that derivatives are part of "what's different this time". In 1990, the total notional value of derivatives outstanding "off" the balance sheet of the commercial banking system in the U.S. was $6.2 trillion. As of 3Q 1999 (the latest numbers released), the value has skyrocketed to over $35 trillion. Needless to say, the number is quite significant. See what we mean?

....Let's get one thing straight, one must draw a clear distinction between notional values and actual dollar values. The whole premise of derivatives transactions is that a few real dollars can be spent to control a large amount of notional dollars. Hence the leverage..."

September 1993

"...In futures trading, the ``notional principal amount'' refers to the value of the underlying assets in a futures contract. For example, in a corn futures contract to take future delivery of 5,000 bushels three months hence, the notional principal amount of the contract would be the price of a bushel of corn times 5,000. If the price of corn were, for example, $2.00, the notional principal value of the corn futures contract would be $10,000. But the actual price of the contract, however, is the margin set by the exchange; the CBOT, for example, requires $270 be paid to purchase a futures contract that on May 15 had a notional value of $11,637.50..."

Another snip...

"...With what are now called derivatives, we move from investment, and purchases and sales of hard commodities, to speculating on the future price or yield performance of what were once investments, and relatively simple, economically necessary transactions. It would be like going to the horse races to bet, not on the race, but on the size of the pot. Who would care about what's involved with getting the runners to the starting gate?..."


2008 ...

$596 Trillion! How can the derivatives market be worth more than the world's total financial assets?

http://www.slate.com/id/2202263/

"Iowa Sen. Tom Harkin issued a call on Tuesday for regulation of the "over the counter" derivatives market, which has an estimated size of about $596 trillion. By contrast, the value of the world's financial assets—including all stock, bonds, and bank deposits—was pegged at $167 trillion last year by McKinsey. How can the derivatives market be larger than the entire world's financial wealth? ..."


http://www.bis.org/statistics/otcder/dt1920a.pdf

"Table 19: Amounts outstanding of over-the-counter (OTC) derivatives

By risk category and instrument In billions of US dollars ..."