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Opinions of Monday, 19 March 2012

Columnist: Adutwum, Owura Kwaku

What Financial Engineering Is and What It Is Not


The media’s repetitious use of the term “Financial Engineering” in the recent Alfred Woyome scandal has heightened the level on negativity associated with the term. As an individual with a decade of professional practice in Financial Engineering and world class experience from working with leading Financial Institutions and clientele, I find the misuse of this term extremely disturbing.

Nearly 5 years ago, an old friend of mine was telling me how I could raise huge sums of money capital if I came to Ghana with my background in Financial Engineering. It was clearly obvious to me upon asking him a few questions that he had no understanding of what Financial Engineering meant.

He thought generating money through fraudulent [419] means and pushing fake documentation in the system was Financial Engineering. I must admit that his interpretation and approach works for him in Ghana but it is definitely NOT Financial Engineering.

I find it shocking, and somewhat disappointing, that the majority of the Ghanaian population is It comes as shock to me that most Ghanaians are being misled to believe that Financial Engineering involves the process of conjuring cash from heavens by any means necessary; especially via illegal and fraudulent means.

Debunking the Inappropriate Use of the Term “Financial Engineering” Financial Engineering is NOT any of these: - cost accounting or, project budgeting, or proposal writing - compiling fake documentation to defraud other parties in a business venture - presenting inaccurate and falsehood on reports - fund raising or deal/match making - deliberating complicating financial transactions in an attempt to confuse or defraud - dishonesty, greed or theft by entrepreneurs, businessmen or any group of people.

Financial Engineering is the application of mathematics, and computer programming skills to solve solutions to certain problems in Finance. It is also referred to as Financial Mathematics, Mathematical Finance, or Computational Finance.

Financial Engineering draws on tools from Applied Mathematics, Computer Science, Statistics, and Economic Theory. Due to its broad knowledge requirements and intensive use of Advance Mathematics, people tend to specialize in the subject by attaining a Masters or a PHD degree from reputable institutions. It is a very competitive area to build a career.

Investment banks, commercial banks, hedge funds, insurance companies, corporate treasuries, and regulatory agencies employ financial engineers in USA, Britain and other countries known to have robust financial markets.

These businesses apply the methods of financial engineering to problems such as new product development, derivative securities valuation, portfolio structuring, risk management, and scenario simulation. The use of these quantitative analysis methods has brought innovation, efficiency and rigor to financial markets and to the investment process in advanced countries.

Conclusion To some extent, the Financial Engineering body of knowledge can be applied to solve some complex problems in Africa but with some gross limitations. People need to understand that this is an area with potential beneficial innovations if only it is designed and applied by qualified and appropriate professionals in the industry. The negative connotation associated with the term Financial Engineering must be rectified by educating the general population to the extent possible before it is too late. The term Financial Engineering must not be used in Ghana as a slang or jargon for defrauding or “azaa/419” practices.

Financial Engineering is a well respected, competitive and rigorous area of mathematics and computer programming used by qualified professionals; it is by no means an area or skill that can be easily attained.

For questions or further clarifications, please send emails to the email addresses below.

Thank You!

Owura Kwaku Adutwum