The Role of Financial Derivatives in Mitigating Risks in Nigerian Banks: A Case Study of GTBank
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Background of the Study
Financial derivatives, such as futures, options, and swaps, are essential tools for managing financial risks. Nigerian banks increasingly adopt derivatives to hedge against market risks, including interest rate fluctuations, exchange rate volatility, and credit risks (Oseni & Adegbite, 2023).
Guaranty Trust Bank (GTBank), a leader in the Nigerian banking sector, has incorporated derivatives into its risk management strategies. By using financial derivatives, GTBank aims to minimize exposure to adverse market movements while enhancing financial stability. This study examines the role of financial derivatives in risk mitigation, focusing on GTBank’s practices.
Statement of the Problem
Despite the potential of financial derivatives in mitigating risks, Nigerian banks face challenges such as low market depth, inadequate regulatory frameworks, and limited expertise. GTBank’s use of derivatives raises questions about their effectiveness in reducing financial risks and improving performance.
This study investigates the role of financial derivatives in risk management, using GTBank as a case study. It explores the impact of derivatives on mitigating market risks and evaluates the challenges faced by Nigerian banks in adopting these instruments (Olowe & Yusuf, 2024).
Objectives of the Study
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To analyze the role of financial derivatives in mitigating risks at GTBank.
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To evaluate the impact of derivatives on financial performance and risk exposure.
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To identify the challenges associated with the use of financial derivatives in Nigerian banks.
Research Questions
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What role do financial derivatives play in mitigating risks at GTBank?
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How do financial derivatives influence financial performance and risk exposure?
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What challenges affect the adoption of financial derivatives in Nigerian banks?
Research Hypotheses
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Financial derivatives significantly reduce risk exposure in GTBank.
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The use of derivatives positively impacts financial performance in Nigerian banks.
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Limited expertise and market constraints hinder the effective adoption of financial derivatives.
Scope and Limitations of the Study
The study focuses on GTBank’s use of financial derivatives for risk management from 2015 to 2025. It analyzes the types of derivatives used, their impact on performance, and associated challenges. Limitations include restricted access to proprietary data and the evolving regulatory landscape.
Definition of Terms
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Financial Derivatives: Financial instruments whose value is derived from underlying assets, used for hedging or speculative purposes.
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Risk Mitigation: Strategies employed to minimize financial risks.
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GTBank: Guaranty Trust Bank, a Nigerian financial institution known for its innovative banking practices.
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