Derivatives usage and computer risk management practices of money managers

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Accounting and Finance


Because of their advantages, derivative markets continue to grow. Disclosure requirements for them are also expanding, and CPAs need to identify and report the use of derivatives by their clients. SFAS 119 calls for disclosure of derivative financial instruments. In a broad sense, derivatives can be characterized as either forward-type derivatives or option-type derivatives. Both have 3 distinct uses: arbitrage, speculation and hedging. Derivatives are used by businesses of all sizes to protect against market risks such as increases in the costs of materials. Derivatives are often used to manage companies' accounts receivable and payable. Companies can hedge against increases in lending rates by using derivatives.