Financial Derivatives: Taking The Road Less Travelled

Once, at the MM International Airport, Lagos, Nigeria, I encountered an official of the National Drug Law Enforcement Agency (NDLEA) who asked me about the source of my income. I respectfully told him that I trade derivatives. 

The man became confused and exclaimed, "Derive… what?" I said derivatives. "What the hell do you mean by that?" he asked.

Derivatives are financial instruments whose value is derived from an underlying asset, such as shares, bonds, currencies, commodities, or interest rates. They are used to speculating on the market and to hedge against risk. 

At this point, the 'officer' called one of his subordinates, "Detain this man until he is ready to say what he does for a living. Let him know we are here to fight money laundering, an aspect of President Buhari's war on corruption. 

Now, the tables have turned, and suddenly, I am the one who has become confused. I wondered why an airport in Lagos, which is a financial centre, cannot boast of 'officers' with a basic understanding of the world's principal financial instruments. 

To some people, this will sound like a tall order, but indeed it is a reality check. The financial world is moving so fast that any country that fails to keep up is left behind and faces the consequences. 

Though these 'officers' lack knowledge of these financial 'jargons', there are some people in Nigeria who know what they are. 

They do not include bank workers who are sent by their bosses to 'capture' deposits. They also do not include the majority of banks' depositors, who surrender their money expecting it to be returned on demand. 

The people who know about derivatives are mostly risk managers of the investment arms of most banks. 

And for the 'officers' at the airport, they finally let me go after I explained how derivatives work. And how they differ from conventional share trading. 

Why don't you deal straight in shares, one of the 'officers' asked me? Because I like taking the road less travelled.