Is The Financial Engineering Well Affected By Covid19 And Us Trade War? Predicting The Derivatives Usage Among Banks In Malaysia

Abstract

Derivative instruments are a contract for the purchase or selling of a given asset, quantity, price, and time which has been set for later delivery today. The former financial derivatives are linked to futures and options, while the latter is forwards and swaps This paper investigates the different reasons commercial and Islamic banks use derivatives and how these changes in derivatives usage impact their efficiency. Additionally, it discusses the impact that US-China trade war and Covid-19 has on the economic performance of Malaysia compared to other Asian countries and how these systematic risks are expected to impact derivative usage of banks. This paper analyses banks use of derivatives towards banking efficiency, through the use of 2 panel studies of 3 commercial banks and Islamic banks in Malaysia for a period of 5 years. To examine this relationship, variables in terms profitability, probability of financial distress, reduced exposure to risk, liabilities and macroeconomic environment are used to perform a multivariate analysis through the use of the E Views software. Based on the result, it can be concluded that to some extent Malaysian Banks use derivatives to improve their efficiency in terms of profitability, risk exposure and macro environment.