Corporate Investment Analysis Report - Finance Module, University XYZ

This report, titled 'Corporate Investment Analysis,' delves into the realm of financial derivatives and their significance in the financial market. It begins by defining derivatives and their role in relation to underlying assets like company stocks, bonds, and currencies. The report then explores the importance of accurate reporting of financial derivatives to prevent investor deception and ensure informed decision-making. It highlights the consequences of incorrect reporting, such as misleading investors and leading to ineffective investment choices. The report provides key recommendations for enhancing transparency and disclosure in the presentation, location, and integration of derivatives, as well as improvements in quantitative risk exposure disclosures, and communication of hedging strategies. Furthermore, the report emphasizes the need to enhance the effects of hedging disclosures in financial statements and extend the scope of disclosures regarding non-qualifying and non-elected economic hedges to facilitate proper valuation of financial derivatives.

Running head: CORPORATE INVESTMENT ANALYSIS
Corporate Investment Analysis
Name of the Student
Name of the University
Author’s Note

1CORPORATE INVESTMENT ANALYSIS
Answer to Question 1
Derivatives market is considered as one of the major components of the financial market.
The derivatives market refers to those specific markets where the transactions of financial
derivatives occur. Derivatives refer to a specific kind of securities whose price is determined
based on the price of underlying assets of the business organizations. Shareholders and others
determine the value of the derivatives based on the price fluctuations of the underlying assets.
Some of the major examples of these underlying assets are bonds of the companies, stock of the
companies, currencies of the countries, rate of interest, various commodities and different kinds
of market indices. On a more specific note, derivatives refer to the contracts between two or
more parties and for this reason, some specific aspects can be used as the as the underlying assets
of the derivative market like weather data, amount of rain and many others. It can be seen that
there are different types of classification of the derivatives; they are Future Contracts, Forward
Contracts, Call Options, Put Options, Swaps and Credit Derivatives (Hirsa & Neftci, 2013).
It is required for the correct reporting of the derivatives as the incorrect or wrong
reporting of financial derivatives may deceive the investors in a large way. It can be seen that
from the wrong reporting of the financial derivatives, the investors get wrong information about
the financial market condition. Due to this incorrect information about the financial market, the
decision making process of the investors gets affected. As the investors of the companies get
unreliable financial information from the market, the investors end up taking ineffective
investment decisions. Thus, this process leads to the incorrect reporting of the financial
information. It needs to be mentioned that the incorrect reporting of financial information
deceives the investors as difference can be seen between the implied risk and returns. Thus, it

2CORPORATE INVESTMENT ANALYSIS
can be said that in this way wrong reporting of derivatives deceive the investors (Bingham &
Kiesel, 2013).
Answer to Question 2
The major recommendations are provide below:
 It is recommended that there needs to be improvements in presentation, location and
integration of derivatives. In addition, there needs to be improvements in disclosure of
various aspects of hedging and other key risk disclosures regarding the financial
derivatives (Battiston et al., 2013).
 It is recommended that there needs to be improvements in the disclosures regarding
quantitative risk exposure. Information regarding comprehensive quantitative risk
exposure is needed for the investors for the valuation of derivatives.
 It is required to improve the process of communication regarding derivatives and specific
hedging strategies. It is the responsibility of the companies to properly explain various
aspects of derivative instruments to the investors (Donohoe, 2015).
 It is recommended that affects of hedging disclosures needs to be enhanced in the
financial statements of the companies. It implies that impact of fair value and cash flow
hedges needs to be enhanced for the proper valuation of derivatives.
 It is recommended to extern the scope of disclosures regarding non-qualifying and non-
elected economic hedges. This will help in the proper valuation of financial derivatives.

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References
Battiston, S., Caldarelli, G., Georg, C. P., May, R., & Stiglitz, J. (2013). Complex
derivatives. Nature Physics, 9, 123-125.
Bingham, N. H., & Kiesel, R. (2013). Risk-neutral valuation: Pricing and hedging of financial
derivatives. Springer Science & Business Media.
Donohoe, M. P. (2015). The economic effects of financial derivatives on corporate tax
avoidance. Journal of Accounting and Economics, 59(1), 1-24.
Hirsa, A., & Neftci, S. N. (2013). An introduction to the mathematics of financial derivatives.
Academic Press.