|
|
This is only a preview of the paper
Click here to register and get the full text.
Existing members click here to login
|
|
|
...
But what exactly are derivatives? Derivatives are financial contracts in which two or more parties take opposite positions as to how a price, index, or interest and currency rates are going change. ... According to the Federal Reserve Bulletin, derivatives can be classified as forwards and futures, which are agreements to buy or sell something at a specific price and at a specific date, and options which allows the holder of the derivative the opportunity to sell or buy something at a specific price. Basically, derivatives are used to better manage business and revenue risk through hedging, although they are also used for arbitrage and speculation purposes. Peter Coy explains that derivatives primary purpose is to transfer the risk from people that do not want it to speculators who are willing to expose themselves to it in order to generate a profit (as in hedging). As mentioned before, the market for derivatives is and will continue to be immense, and one of the primary concerns was how to properly record the derivatives in the financial statements and how make them easier to understand.
Prior to the issuance and implementation of the Financial Accounting Statement (FAS) 133 “Accounting for Derivative Instruments and Hedging Activities”, the accounting procedures to record derivatives was unclear and imprecise. ... Patouhas, under FAS 80 “Accounting for Futures Contracts,” which preceded FAS 133, many companies did not properly record their derivatives and/or their hedging gain and losses. In addition, they comment that people who relied on the derivatives information did not received any guidance from auditors of how treat hedge accounting. Financial users and CPA’s often didn’t thoroughly understood how to handle derivatives. Another problem before the implementation of FAS 133 is that commodity industries did not considered their contracts on the sale or purchase of gold, oil and other commodities as derivatives.
Approximate Word count = 1481
Approximate Pages = 5.9
(250 words per page double spaced)
|
|
|
|
|
|