Reporting of financial derivatives within Turkish financial reporting standards and analysis of financial derivatives' effects on asset liability and risk management practices of banks: Turkish banking sector practices

Financial derivatives whose volume increased with rapidly evolving and liberalized financial markets and which are in debate with the global financial crisis, are used to hedge financial risks or make speculation or arbitrage. Derivatives have important benefits like facilitating of risk management, making forward prices to be predictable, helping to make decision about future. However they have significant risks in their structures. Indeed, it is possible to enter into high volume obligation with little capital. In addition, derivatives are the contract including two parties, one of them always lose if the other wins. Derivatives are complicated instruments and becoming more complex. Thus it is difficult to understand and manage the risks of these instruments. The importance of monitoring and management of risks arising from derivatives is clearly understood with the recent global financial crisis. In this context, the fair recognition of derivative transactions and especially to be transparent banks' balance sheets enough to reflect the reality in terms of risks arising from derivatives is crucial for financial and economic system. Aim of this study is to examine the usage of derivatives which are frequently carried out by banks in terms of asset liability management and risk management, explain the risks arising from the nature of these instruments, evaluate the effects of derivative transactions to the banks' balance sheets in terms of Financial Reporting Standards and the uniform chart of accounting, examine the practices in Turkish banking sector and explain how the risk management practices are presented in the financial reports.