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Conceptual Bases of Financial Engineering in Banking International Journal of Research in Management & ISSN : 2348-6503 (Online) Business Studies (IJRMBS 2019) Vol. 6 Issue 4 Oct. - Dec. 2019 ISSN : 2348-893X (Print) Conceptual Bases of Financial Engineering in Banking Saipnazarov Sherbek Shaylavbekovich Ph.D Student at Banking and Finance Academy of Republic of Uzbekistan Tashkent, Republic of Uzbekistan Abstract The article discusses the conceptual foundations of financial engineering in order to identify its place and role in the development and optimization of the banking system, including from the point of view of increasing the efficiency of its activities. As a methodological basis, a set of general scientific logical-heuristic methods of analysis and synthesis, induction and deduction, the principle of interdependence were used. The author conducted a comparative study of the positions of various scientists regarding the concept of "financial engineering". It is shown that banking activities need the use of products and financial engineering tools, since they are the ones that can increase liquidity, reduce business risks and attract new customers. Keywords Financial Management, Innovations, Financial Engineering, Innovative Banking, Efficiency Of Banking System. Introduction includes the design, development and implementation of innovative One of the factors contributing to the development of the banking financial instruments and processes, as well as the creative search system is the development and implementation of new banking for new approaches to solving problems in the field of finance” technologies. Nevertheless, innovations in the banking business [16]. include not only technical developments, but also the introduction From the point of view of the financial market, the term “financial of new forms of business, methods of working in the market, engineering” is used to describe the analysis of data collected in new goods and services, new financial instruments, that is, all the financial market through the prism of scientific [15]. the results and products of financial engineering. According to 1APE (International Association of Financial An analysis of the works published on the subject under study Engineers), financial engineering is defined as the application of indicates that they are mainly narrowly focused: they cover the mathematical methods to solve problems in the field of finance application of financial engineering in working with securities [17]. I.A. The form defines financial engineering as a process [1-3] or in the work of individual economic entities [4, 5]. of purposeful development of new financial instruments or new Many key points of financial engineering have not yet been schemes of financial transactions [18]. Merton R. [13] and Kopcke explored. So, while there is no assessment of the economic R.W., Jagtiani J. [14], Hoda A.I. [15], Marshall D.F., Bansal V.K. efficiency of financial engineering in banking, there is no consensus [sixteen], . Koo H.K. [17] consider that financial engineering is the on the goals, principles, functions of financial engineering and clear development of a financial management system and minimization recommendations on the formulation of the concept of financial of financial risks. S. Ross noted that financial engineering is a engineering, which indicates the absence of a well-developed technology for managing financial risks in the derivatives market methodological basis for the development and implementation of using hedging operations [18]. In addition, financial engineering is financial engineering products in banking practice.All these points understood as the combination or separation of existing financial confirm the relevance of the research topic and its debatability. instruments in order to create new financial products (financing packages) [21]. Literaturereview A lot of works of famous scientists, economists, in the process of Theoretical frames of financial injiniring in banks consideration, which have a lot of controversial issues, are devoted Under technology in the process of financial engineering in a to questions of considering the correlation of the categories bank should be understood any banking product, operation, “financial management” and “financial engineering”. The points process that may arise in the process of carrying out activities. of view of such authors as: Bui T. [1], Laurens Galitz [2, p. 30], With this assumption, it is advisable to study the relationship R. Kolb, J. Overdahl [3], V. G. Dufe and J. N. Giddy [4], A. M. between financial engineering and financial management, since Prokhorov [5] and others. risk reduction is one of the goals of financial management, in this Special attention deserves consideration of approaches to the regard, financial management methods can be used as methods definition of the term “technology” in relation to the banking sector. of financial engineering. To more clearly define the relationship So, A. M. Prokhorov defines technology as a set of processing between financial management and financial engineering, a methods, manufacturing, changing the state, properties, form of comparative description of their components and elements should raw materials, material, which is carried out in the process of be made. production [5]. Both concepts imply the use of a control system of one’s own As an analysis of literary sources has shown, financial engineering object. The goals of financial management are divided into is a derivative concept in relation to engineering [6] and is closely tactical and strategic [7, 8]. The goals of financial engineering related to innovations in financial management of a company can be formulated in a similar way, since they can be considered [7-11]. depending on the result that financial engineering is aimed at. The According to D. Finnerty, financial engineering includes the design, purpose of financial management is: development and formation of creative individual solutions to 1) achieving maximum profit; problems in the field of finance [12]. 2) financial support of the activities and development of the D.F. Marshall and V.K. Bansal noted that “financial engineering bank by shareholders and creditors; © 2014, IJRMBS All Rights Reserved 82 www.ijrmbs.com International Journal of Research in Management & ISSN : 2348-6503 (Online) Vol. 6 Issue 4 Oct. - Dec. 2019 ISSN : 2348-893X (Print) Business Studies (IJRMBS 2019) 3) risk management; indicate the achievement of the designated goal. 4) increasing the efficiency of activities. Thus, as the final result of financial engineering in a bank, we The subjects of financial management are the financial services propose to consider a banking product (innovative or with new of the bank, as well as the management and financial managers of properties) and an organizational structure (new or with certain the bank. We see differences in financial engineering and financial changes). The resulting result of financial engineering must meet management in that financial management is a continuous process, the specific interests of counterparties, shareholders. the goals of which are interconnected and extend over time, and Contemporaries define financial engineering as “solving problems must be adjusted to reflect the situation and the result obtained to increase the efficiency of financial activities and reduce financial earlier. The goals of financial engineering are final, clearly defined risks by not only designing new products, but also by effectively and may not be interconnected. At the same time, the whole process using various combinations of existing financial instruments to is aimed at achieving one goal, in the fulfillment of which the need achieve their goals in the interests of participants in financial for financial engineering ends. relations, regardless of organizational legal form and scope of Having determined the dependence and interpenetration of their activities ”[22] or as“ a process that adapts existing financial financial management and engineering, we can argue that financial instruments and processes and creates new ones to enable financial management methods can be implemented in the process of market entities to adapt most effectively to a changing environment financial engineering. We believe that such phenomena as risks ”[23]. and profitability cannot be the subject of financial engineering, So, scientists have addressed the issue of determining the essence since they are manageable, generated in the course of the bank’s of financial engineering since 1985, and to date, this topic has not activities and accompany its operations. Financial management lost its relevance. should be focused on a certain subject, which can be modified The analysis of the existing definitions of financial engineering in terms of its quality characteristics using financial engineering allows us to distinguish two types of activity inherent in it: tools. In addition, we believe that the use of only securities - development of new financial products; (derivatives or primary) as an object significantly reduces the - improving the efficiency of financial activities, including by possibility of applying financial engineering in other aspects of minimizing risks. banking. Therefore, we propose to use banking products and Given the events of recent years, it can be argued that financial services as an object of financial engineering. engineering is of particular interest to banking institutions. After analyzing the approaches of economists, it is advisable to Financial innovations in
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