Financial Innovation

Financial innovations can take many forms. They encompass new instruments for the use of investors and issuers alike. This might include alternative forms of investments, for example, exchange traded funds, money market funds, or index funds but also new derivatives such as credit derivatives, catastrophe bonds, and similar. New technologies like cash machines, online banking, or the use of big data and artificial intelligence provide another avenue for such innovations. New institutions are the final and, often most influential, innovation. It will include new forms of banking, such as Islamic banks, electronic exchanges, or shadow banks. Investment banks are mostly involved in developing new instruments but might provide support in any of the other areas of innovation. The benefits to clients of such innovation might be in efficient access to markets that were previously difficult to enter, for example, the market for investing in an index, but also in access to instruments that allow for effective diversification or the hedging of risks.