Use of hedging techniques of financial engineering in banking

Risk and risk management which are inherent in almost every part of life are so important for banks called as cornerstone of financial sector. Crises as a result of poorly managed risks in the financial sector spread to other sectors and even damage the economies of all countries worldwide. The main reason for all banking crises have happened till now is risk not well managed. Economic, social and technological changes in addition to the increasing globalization of financial markets in recent years as a result of competition have brought along uncertainty and instability in financial sector. While this situation causes to born a new role which companies and instutions can work on in financial management, complexity of financial decisions and emergence of new financial goods enhance importance of financial management. Financial engineering means formulation of design, development, implementation of innovative financial instruments & processes and innovative solutions for financial decision making problems. Financial engineering is widely used to apply for short term funding. Financial engineering is special area of interest for banking institutions. Design of effective risk management procedures in addition to new financial and investment goods is so important for viability of banks operating in highly competitive global market. Thus, it is required to give much more importance to a series of related issues such as banking management, audit and control, effiency and effectiveness analysis, merger and acqusition processes, customer relationship management as well as risk assessment as a regulatory frame, asset& liability management, financial management and portfolio optimization. Key Words: Banking, Risk, Financial Engineering, Forward, Futures, Swaps, Options