The Influence Of Derivative Instruments Standards To China's Listed Banks

There are two factors which made the economy of Western countries fall into stagflation in the seventies of last century:first, Bretton Woods System which set up after World WarⅡwas finally collapse; second, the outbreak of the two global oil crises. The prices of oil and other primary products, as well as financial market interest rates, exchange rates and asset price's volatility of the market risk increased significantly in such an international context. At the same time, Western governments and monetary authorities had taken various policy measures to promote deregulatoring process to meet the emerging market structure changes. Result of the financial system innovation and innovation in financial instruments, derivatives transactions develop rapidly in global, it becomes to play an more important role on the macro-financial and micro-financial market.Derivative instruments, or derivative products, are commercial contracts accomplished by the buyers and sellers, its value is derived from the underlying asset's future value. The initial derivatives were based on physical goods of some kind, such as agricultural, livestock or minerals. Today almost all of the financial products or financial instruments have also been used as a basis for derivative trading assets just like physical goods, and occupy a major share of the derivatives markets.Financial derivatives trading is a high-risk, high-return investment act or transaction mode, because of its strong financial leverage. For example, investors or speculators can spend a small amount of funding (the margin futures or options trading fee), to "bet" much more underlying assets's market price movement trends or changes range with a view of making the profit of risk. Besides, hedgers may spend a small amount of invest in derivative transactions to establish the mechanism of the hedge position for offseting the losses by any-possibility.Derivative instruments enter chinese market in the eighties last century, there're six or seven kind of derivative instruments being used or having be used in China. Derivative trading begins in the year 1991, then the government make experiments of derivative trading in 1993 and 1994. The total trading volume of the national treasury futures market reached 2.8 trillion yuan that time. Lots of default occurs in 1995 because of experience absense in management, such as the 327 bond futures contract violation crisis, or the 319 contract position limit violations super storm, so, government no longer allows treasury bond futures trading, and prohibit any domestic financial institutions engaged in overseas trading of derivative instruments.There're five kind of derivative instruments in today, convertible bonds, warrants, foreign exchange forward contracts, swaps, and options. Although the total volume of business is small, but they cause a lot of problems in many fields, how to reflect the option value of the bonds in accounting issues at listed companies and investment companies of convertible bond transactions, and how to reflect the impact of gains and losses of business arranged by hedging foreign exchange bank at foreign-funded enterprises, foreign trade companies, state-owned large and medium enterprises. So, we need to formulate a unified system of specific criteria to respnd implementing derivatives business risks as soon as better, strengthen the disclosure of accounting information on the content and presentation of the supervision and guidance.We can merely find provisions of derivative intruments before 2007, accounting standards for enterprises didn't become effective untill this year. The risk positions of financial instruments is required to disclose in the accounting statements by accounting standards for financial enterprises; Out of balance-sheet disclosure obligation is aslo requird in interim measures for managing financial institutions derivatives, but the basic accounting recognition and measurement issues never appear in both of these regulations. The current accounting standards for enterprises provides guidances for derivative instruments in two aspects:first, the use of fair value measurement, which reflect the corporate's real assets and profit and loss situation, and being convenient for investors'decision-making; second, inside balance-sheet accouting is needed, then the impact of bank assets and profits will be reflected directly in the report.In the paper, usage of derivative instruments in banks is the most important issue, as million of forward contracts or other kinds will be arranged every day. Eight listed banks will be researched to find out the impact of the new accounting standards for enterprises. We collect data from these banks'annual report in 2006-2008, during that period regulations of accouting have changed. Then we pick up the net income-assets ratio and total assets to represent the impact of the new regulation, we adjust these two index in getting rid of the derivative instruments, then we get two different ratio. Paired t test and Wilcoxon sign rank test are used to research the initial data and the non-derivatives data, in order to find out whether the new provisions influence the banks'accouting for derivative instruments. In the end, this thesis want to discuss banks'managements of derivative instruments and internal control in the current business environment for the avoidance of risks in their own operations.