Analysis on Financial Risks of Derivation and Preventive Measures

  •  Yu Pan    
  •  Fan Wu    


Financial derivatives, as innovative financial instrument, have been designed for enterprises to avoid financial risks. Most of these derivatives rely on future trends of traditional tools, such as valuation, interest rates and exchange rates. Such expected future transactions or events can not be recognized as assets because they do not meet the definition of assets, economic resources owned or controlled by enterprises and only made by past transactions. The use of the traditional accounting model does not accurately disclose this kind of "off-balance-sheet items," and their impact on financial statements. This paper provides some methods for enterprises and government to appropriately recognize and reveal the risks and benefits of financial derivatives.

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