The Application Of Derivatives Under The New Accounting Standards In The Management Of Listed Companies

Since 20th century 70s, derivative financial instruments has developed rapidly. More and more enterprises began to recognize the powerful hedge effectiveness of derivative financial instruments participate in derivatives trading activity actively, and make use of derivative financial instruments to avoid risks even do speculative arbitrage. At the same time, participants also brought the ever-growing financial market a profound impact. Derivative financial instruments have provided an effective instrument for financial institutions, non-financial companies, enterprises and investors hedging, risk management, and portfolio management. Meanwhile, with the rapid expansion of derivative financial instruments trading volume, its own huge risks has been increasingly apparent. Worldwide financial crisis, and financial stormswere endless, and it seemed that each of them was linked with derivatives. Facing of the powerful hedge features and strong self-same risks of derivative financial instruments, how China's enterprises go. This is the main contents of this article.If the companies do not participate in derivatives market, they will lose a powerful instrument of the hedge and will be exposed to many uncertain risks in international competition. Derivative financial instruments like a knife. If firmly hold the handle, we can manage it, and make it serve for us, which is the main purpose of our study on the financial instrument. Only depth study of various characteristics, and hedge functions of derivative financial instruments, as well as risks its own existence, a company can achieve mutual understanding in order to participate in the market in an invincible position.Our government and financial departments have given more and more attentions to the derivative financial instruments market. In February 15, 2006, the Ministry of Finance announced the "Accounting Standard for Business Enterprises". Compared to the old criteria, there has been a substantial improvements of the new one in recognition and measurement of the financial instrument, and presentation of financial instruments. It not only standardized the accounting treatment of business-to-use financial instruments, but also was able to disclose the financial risk timely and effectively. Thereby, it has enhanced the quality of accounting information, and protected the interests of investors. Due to the new guidelines were implemented on listed companies at the first on January 1, 2007, This paper focuses on the application of the new guidelines in listed companies.In this paper, the first chapter introduces some basic theory of the derivative financial instrument: the historical background and development of the derivative financial instrument. Modern sense of the financial derivatives appeared in the 70s last century. The collapse of the Bretton Woods system caused the floating exchange rate taking place of the fixed exchange rate. The risk of international trade and international investment activities increased so that all the countries recognized the need of avoid risks, which made people looking for ways to avoid risks. It is the international situation provides a strong demand of financial derivatives product innovation. Then, together with the definitions of the United States Financial Accounting Standards Board, International Accounting Standards Committee, and China's Financial Accounting Standards, three aspects of the system, this paper described the concept of derivative financial instruments. Finally, this paper analyzes various functions, including risk aversion function, speculative arbitrage function, the price discovery function and so on of derivatives. Meanwhile, its own risks, including market risk, credit risk, operational risk, liquidity risk and legal risk and so on are also included. Looking back and focusing on the future, through the analysis of international and domestic derivative financial instrument we can make the future development trend prediction.In this paper, the second chapter includes the new accounting standards on derivative financial instruments in our country. The accounting treatment, which include the recognition of derivative financial instrument conditions and measurement conditions. Compared to the International Accounting Standards and the United States Financial Accounting Standards, this paper analyzes the impact to listed company's financial condition and operating results of the new guidelines.Chapter three is an important part of this paper, mainly introducing the specific applications of derivative financial management functions and financial management of listed companies. First of all, a specific introduction of derivative financial instruments is introduced, including the concept, characteristics, classification and related financial management functions; secondly, an analysis of application of derivative financial instruments at financing the management of listed companies and investment management is included. Forward contracts and futures contracts of listed companies are mainly used for the risk in financing related to foreign currency exchange rate changes and t changes in interest rates; the application of options contracts can change the enterprise's capital structure, and increase the flexibility of financing investment; swap contracts, including currency swaps and interest rate swap. Enterprises can make use of currency swap lock financing costs. Interest rate swap participants will be able to convert fixed-rate to floating interest rates or vice versa. and their assets and liabilities will be more closely match to the duration. Finally, in addition to risk aversion, there are also some market participants using derivative financial instruments for speculative arbitrage. This paper also introduces speculative arbitrage for the specific method of operation corresponding introduction. At the same time, this chapter also interspersed a number of classic cases, to the further integration of the actual analysis.Chapter four of this article focused on how to make use of derivative in Chinese listed companies'financial management. By contrast with the developed countries on the development and application of our derivative financial instrument of the necessity and feasibility: including economic globalization, financial globalization demand, China's capital market needs of further development, as well as the hedge strong required by listed company itself and so on. At the same time, 30 years of reform and opening up China's capital market has also been made in the objective conditions for development of the basic with the development of derivatives market. Finally, some problems which should be paid attention to in the application of the derivative financial instruments are summarized.