Volume 4, No. 5

 

Derivatives Essentials For Analysts:  One expected highlight of 1994 annual reports will be the increased disclosures regarding derivative financial instruments. The new disclosures required by Statement of Financial Accounting Standards No. 119 relate to four basic financial instruments: swaps, options, futures and forwards. Firms must deliver increased disclosures about these, and any other financial instruments they employ that possess characteristics similar to these four basic "building blocks". Before analysts study the new information, it's wise to understand how the instruments being described in the new disclosures are constructed and used. Acquiring such knowledge should place an analyst in a better position to evaluate the derivatives activities of investee companies.

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