KUWAIT CITY, Jan 10: Local banks experienced a notable decline in their investments in financial derivatives over the 11 months of 2023, marking a 9.3 percent decrease from 12.95 billion dinars in December 2022 to 11.77 billion dinars in November 2023, according to data from the Central Bank of Kuwait for that month.

On an annual basis, these investments saw a 19 percent increase, reaching 1.872 billion dinars compared to 9.87 billion dinars in November 2022. Additionally, there was a monthly uptick of 6.9 percent, amounting to approximately 758.2 million dinars, following the 10.98 billion dinars recorded at the end of October.

Throughout 2023, bank investments in financial derivatives witnessed fluctuations, starting from 12.951 billion dinars in December 2022 and reaching a low of 9.725 billion dinars in June. The values rose and fell within this period, reaching a peak of 10.986 billion dinars in October. 

Financial derivatives encompass diverse investment instruments deriving their value from financial assets or other assets like stocks, bonds, real estate, currencies, and commodities.

These instruments, such as futures contracts, options contracts, and swaps, can be bought, sold, and traded on various exchanges.

Futures contracts involve a binding agreement to sell or buy an asset at a future date and agreed-upon price. They can cover various assets, including currencies, interest rates, and stock indices. Forward contracts, on the other hand, represent an agreement to sell or purchase an asset at a predetermined price on a future date. 

Options contracts are agreements that grant one party the right (but not the obligation) to buy or sell the underlying asset at a specific price on a future date, in exchange for a premium. 

Over the past years, several Kuwaiti banks have gained approval from the Central Bank of Kuwait to establish special purpose companies in the Cayman Islands, aimed at engaging in financial derivatives contracts.

By Ahmad Fathi 

Al-Seyassah/Arab Times Staff