The Baring's Bank Derivative Disaster: An Analysis and Recommendations
Nowak Jr., Robert J.
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Recent events within the financial services industry have raised concerns regarding the use and control of derivative financial instruments. Limited only by their own imaginations, financial engineers have restructured traditional financial instruments such as stocks, bonds, and loans, into new, complex instruments whose value is derived from their underlying components. It has become apparent that the development and application of derivative financial instruments has outpaced parallel changes in internal control procedures and financial reporting standards. By conducting a detailed case study and analysis of one recent disaster involving derivatives, an assessment will be made as to whether the present controls are adequate to fairly control and report the activities of an entity using these instruments.