Today's column might sound a little dull, like those mathematics sessions in high school that used to take place after lunch.
It should not feel that way, especially if you want to understand a bit of the latest drama surrounding the Shs 36bn loss at the
The occasion was all about BoU's five-year market development plan. Top officials from the bank took us through key strategies on how they intended to develop
There were some interesting things the central bank wanted to do. One of them was to promote the derivatives market. What the hell are derivatives, you might ask. See, in a world where the prices of goods and services keep changing by the minute, it is usually better to guard, or hedge, as bankers like to say, against this risk.
For example, an announcement that the housing market in
The prominent derivatives in this market are the swaps and forwards. So, if a trader wants to buy a container full of shoes in December to sell during the festive season, they can buy a derivative, which will allow them to buy dollars later at a fixed rate, regardless of what the market price will be at the time.
Today, a trader can go to a bank like
UNRA's Shs36bn foreign exchange loss, as discovered by the auditor general, could have been avoided if it had bought a derivative product. UNRA's million-dollar contracts are so huge it is reckless to leave them exposed to the whims and charms of volatile forex markets, where a simple rumour could whip up tensions globally.
UNRA says its money comes from the consolidated fund at
I am afraid those excuses do not hold water; they are flimsy at best and a poor attempt to create a red herring at worst. And why should UNRA care about the third party?
There is no law that stops UNRA from guarding against this risk. You can only feel for UNRA if it said it did not have the experts who can price these derivative products fairly. Then again, UNRA surely has the money to hire financial geeks who know these all too well.
Derivatives, it must be said, have a tarnished name as they were at the centre of the global financial crisis of 2008. But the derivatives in
The derivatives in
They must be many. Where are those plans that BoU had on paper to promote derivatives?
UNRA's loss should finally wake us to the need to guard against these risks. I fear, however, that many of us are in one big slumber it would take a more alarming figure than Shs 36bn to wake us up to the wastage in our public institutions. So much for that coffee and samosas, BoU.
The writer is the business editor of The Observer.
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