Abstract
This paper begins with a brief explanation of what derivative securities are and what purpose they serve. Next, the paper briefly explains how derivative activity level can be monitored and then takes a look at the derivative disasters that befell the Baring Brothers of London and the local government of the city of Orange County. The paper explains that these disasters were a result of careless strategies with derivatives and examines the lessons learned from these two disasters. Finally, the paper suggests measures that can be taken to prevent such disasters from happening again.

From the Paper
"A Derivative is a contractual relationship established by two (or more) parties where payment is based on (or "derived" from) some agreed upon benchmark. Derivatives are risk-shifting devices. They are most frequently used to reduce exposure to changed in foreign exchange rates, interest rates, or stock indexes."

Tags:financial, markets, interest, rates, international, banks, notional, accounts, over-extended

Abstract
This paper will probe further into the issue of risk in derivative contracts. A special focus will be given to forward exchange rates in currency markets. This is an increasingly active and volatile arena that is both interesting and important to study. Currency flows each day total well over 1 trillion dollars (US), greatly exceeding the actual value used for foreign trade. Other derivative contracts used by corporate investors will also be considered. In the final analysis, it is clear that all financial instruments are derivative contracts in one form or another. What separates them is the degree of volatility and risk. The riskier the financial instrument, the more difficult it is to establish forward rates.

Abstract
This paper provides an overview of the problem facing regulators and investors in determining the financial integrity of a company today. A definition and discussion of financial derivatives and current reporting requirements for such instruments are provided, followed by an analysis of current and future trends. A summary of the research is provided in the conclusion.

From the Paper
"Today, corporations are facing a dual pressure to report smooth earnings in an increasingly transparent environment. According to the CEO of a Fortune 500 firm, "[t]he No. 1 job of management is to smooth out earnings" (Barton 2001:1). Consistent with this view, several academic studies have documented that corporate managers make discretionary accounting choices, in part, to reduce earnings volatility. Certainly, earnings management is believed to be so common that the media and regulators are expressing concern about its effects on the quality of reported earnings and the functioning of capital markets in the U.S. and abroad, but to date, the media, academics, and regulators have largely focused on discretionary accounting accruals as the primary means by which managers smooth their firms' earnings. However, corporate managers can also help reduce volatility in earnings by using other tools, such as financial derivatives, that smooth their firms' cash flows (Haberman 2003). The sour taste left in investors' mouths after the collapse of Enron and their ilk, though, have raised a number of questions about whether the current requirements for reporting derivative transactions are useful to investors. To this end, this paper provides an overview of the problem, a definition and discussion of financial derivatives, current reporting requirements for such instruments, followed by an analysis of current and future trends. A summary of the research will be provided in the conclusion."

Tags:call, futures, gaap, notes, options, oxley, put, sarbanes, structured, swaps, swaptions

Abstract
This paper provides an extensive review of the recent literature relevant to pricing credit derivatives. The paper discusses new developments in credit derivative pricing and explains that these new developments are those innovations that expand or clarify the existing variations models for credit derivatives.

From the Paper
"The purpose of this study is to review new developments in the pricing of credit derivatives. Credit derivatives, essentially insurance against credit risk through the structuring of and trading in of synthetic financial assets, are little more than a decade old. Thus, a skeptic might state that almost anything that occurs in the credit derivative market reflects a new development. The perspective providing the focus in this study however is that new developments are those innovations that expand or clarify the..."

Tags:Credit, Derivative, Pricing, Model

Abstract
The writer of this paper defines a derivative as a contract that specifies the rights and obligations between the issuer of the security and the holder, to receive or deliver future cash flows based on some future event. This paper examines the various uses for derivatives which are standardized much the same as stock futures and traded through a securities exchange or futures exchange. This paper discusses the use of derivative securities as a tool to transfer risk. For example, a business can sell futures contracts on a product to a buyer, even before that particular item hits the shelf. The writer cites the various types of derivative options, such as the swap and the forward contract, which is an agreement between two parties to buy or sell a particular asset. A swap is an agreement in which, generally two, parties agree to exchange future cash flows, arising from financial instruments. This paper details how forward contracts are implemented in the corporate business world, as was the case with Lufthansa, who contracted with Boeing to purchase aircraft in the mid-1980s. This paper delves into the process known as financial engineering, which combines options and other derivatives while at the same time controlling the risk in a given transaction. This paper also discusses how derivatives are used as an option in tax planning.

From the Paper
"A common use of options for tax planing involves the deferrment of a gain from one period to another, thereby delaying the payment of taxes. For example, one company may have an investment in another company's stock that has appreciated. Company A would like to lock in the gain on Company B's stock, but does not wish to recognize the gain in the current year. It can accomplish this by using put options. This strategy would involve buying put options at the current stock price, expiring in the next fiscal year. If the stock price declines, the value of the option would increase, locking in the profit. Another strategy would be to sell a call option at the current market price. This would also lock in the gain, as any decrease in the price of the stock would be offset the increased value of the option. These strategies can also be used to reduce the risk of a drop in the stock price without regard to tax issues."

Tags:accounting, finance, business, options, stocks, investment

Abstract
This paper looks at how a derivative is defined as a financial instrument, such as an option or future, that derives its value from the movement of a price, exchange rate, or interest rate associated with some other item. It provides different examples of how derivatives are used in the financial world and examines how they have been blamed for many financial scandals, such as the fall of Enron, WorldCom, and Global Crossing.

Outline
Introduction
Types of Derivatives
Examples of Derivatives
Accounting for Derivatives
Derivatives and Scandals
Conclusion

From the Paper
"Derivatives are classified into two different types. There are linear derivatives; whose payoff represents a linear function, meaning with every movement, a dollar amount is directly affected. The other form of derivative is a non-linear derivative, in which the payoff changes with time and location (Sooran, 2004). When an individual purchases shares of a company, the payoff is linear, not accounting for dividends paid. If the stock purchased increases, a profit is earned. In contrast, if the stock purchased decreases, a loss is incurred. An investor can choose options to minimize their risk when investing."

Tags:commodities, futures, investment, market, options, risks, stock

Abstract
The paper discusses the forward contract, a futures contract and a spot contract. The paper explains how call options and hedging, both financial and non-financial, works. Finally, the paper looks at interest rate swaps, currency swaps and credit default swaps.

From the Paper
"The first type that will be examined is the forward contract. A forward contract is an obligation to sell a specific quantity of a good for a specific price at a later date. Forwards can exist for both commodities and for currencies (Financial Web, 2008). A forward contract is a private contract, therefore it is not traded on a public exchange. Typically, when a bank enters into a forward contract with a customer it is for a currency exchange. The advantages of forwards are that they are customizable. The customer is able to meet its needs directly and specifically because the terms of the forward are fully negotiable between the two parties. Some of the disadvantages of forwards are that there is no liquid secondary market for forwards. Furthermore, because the forward is a private contract between two entities, the parties are subject to counterparty risk. A firm would typically enter into a forward contract when they require a perfect hedge. A forward removes all market risk, but at a cost of low liquidity, therefore a firm would use a forward only when they had complete trust in the counterparty."

Tags:forward, futures, spot, contract, call, option, hedges, interest, rate, currency, credit, swap

Abstract
This paper discusses credit derivatives in modern banking. The paper gives a brief outline of credit derivatives, and further discusses the concept of how they function within the global market. The paper examines occurrences within banking in relation to credit derivatives and how these events have affected the worldwide opinion regarding the limitations of these transactions. The paper draws conclusions from the research provided, and offers opinions for the future of credit derivatives in banking.

From the Paper
"When the economy is stable and interest rates are low, banks traditionally struggle for profits because there is not a significant need for loans from consumers or big business. In these moments of financial peace, banks needed methods that would ensure they could survive independently on the downfall of the economy in order to remain solvent. Credit derivatives were born of such concern, allowing bankers, and others, the ability to reduce their risk by selling risk to other parties. Risk was still maintained by lending institutions, but the prospect of intense profit margins was the deciding factor for most banks to begin to participate in credit derivatives. The research will demonstrate that bank use of credit derivatives has been a recorded success, and that credit derivatives continue to grow across the globe as a boom to the banking industry. However, limitations do exist connected with credit derivatives."

Tags:credit, derivatives, banking

Abstract
This paper examines how over the past several years the onset of derivatives trading has emerged to the forefront of financial news and popularity within the financial community. The paper also considers how derivatives have been cast in a rather harsh light given the prevailing financial conditions of the recent past. Although derivatives have been criticized as the cause of the recent economic crisis, they are a fairly common practice for financial firms to engage in an attempt to hedge certain types of risks.

From the Paper
"With the advent of the highly integrated global economy and the increasing complexity of equities markets, firms are always looking for the next venue within which they can enter and extract gains for their shareholders or seek returns on their investments. Over the past several years the onset of derivatives trading has emerged to the forefront of financial news and has grown in popularity within the financial community. However, one could argue that recently, derivatives have been cast in a rather harsh light given the prevailing financial conditions of the past 6..."

Tags:currency, derivatives, asian crisis

Abstract
In this article, the writer considers recent developments in derivatives with a particular emphasis on how the derivatives market might be regulated differently.

From the Paper
"Derivatives are contracts between two parties that are typically used to provide protection against risk in the market. These financial instruments have been used for many years but they have also proved problematic. The ...s bankruptcy of Orange County California was attributed to the use of derivatives for example. In the mid-... s the credit default swap became a commonly traded derivative that offered risk protection to those who participated in it. In the credit default swap one entity would ..."

Tags:financial derivatives, financial regulation, financial markets