Financial Innovation

Change is inevitable. Whether in life or in business, adaption must take place in order to survive and thrive. Financial innovation is an example of business evolution where firms develop instruments that are more efficient at redistributing risk from those who are unwilling to bear to those who are willing (M. Miller, 1986). There are some experts that believe financial innovation was invented to avoid tax rules and regulations. Although, this is not a as popular …

…efficient and attractive industry. Innovation can appear in the form of product packaging (mutual funds or asset securitization) or technological development (computer assisted asset trading). It does not matter how or where the innovation originated, as long as the innovation promotes behaviors like borrowers receiving a new source of funds, improving the liquidity of the market, and assisting the market participants to avoid constraints imposed by regulation, all parties involved will benefit from the innovation.