The financial information is a plus if the company uses fair market values because it is in compliance with the accounting principle of materiality. Accounting theory states that accounting data that is material will influence the decision making process of the derivative investor as well as owners of businesses and shareholders of corporation. The use of the fair market value is very material because it will sway the investors to increase his or her investment in derivatives, corporations, public listed companies, partnerships and other business ventures.
Another example of materiality is the liability amounting to only of ? 100 to one of the company’s creditors is not material when the total debt is ? 150,000. The amount of ? 100 is only a small percentage of the total debt mentioned here. On the other hand, not using the fair market values in the presentation of financial accounting data would violate the accounting principle of materiality. The investor in the derivatives market would gain much from receiving financial data that shows the fair market value of the derivatives offered in the derivatives market.
For, non disclosure of the fair market value would prevent the investor miss the opportunity to invest in additional derivatives if they are not aware that the fair market of the derivative shows that there is a high probability that the prices of the derivatives will continue on an upward climb. The gold derivative price above table shows that fair market value of the silver bullion had decreased from its last fair market price of 16. 22 to the lower 16. 1.
This shows that it is not a good investment opportunity to invest in this derivative item because there is a high probability that the derivative price will continue on a downward flow. The gold bullion has also decreased from its former market price of 896 to the lower 891 market price. Again, this gives evidence that it is not good to invest in this gold derivative because of the downward price probability. It is also not beneficial to invest in the Palladium derivative because its latest fair market value has declined from its former price of 379 to only 378.
On the other hand, it is a good investment strategy to invest in Platinum because the market price of this derivative has increased from its former fair market value price of 1565 to the higher 1559. This proves that the fair market value is a compulsory item for better decision making. The Petroleum Derivative price Fluctuations Graph shows that the fair market value of the crude oil prices for 2006 had increased. This is due to factors like the Iran/Iraq war, the Iran revolution, the PDVSa strike Iraq War and Asian Growth, the Series of OPEC Cuts, United States crude oil price controls, Yom Kippur War Oil embargo and the Suez Crisis.
Likewise, the fair market value of the crude oil prices was also influenced by the September 11, 2006 twin tower bombings in New York. The above fair market values are very important for the investor in derivatives like crude oil to make better informed decisions. The U. S. dollar graph shows that the trend for the past years covering 1993 to 2007 has been fluctuating. This seasonal trend (represented in red color) has reached the higher at 81 and it had hit the lowest which is lower than the 75 market price.
However, the current US dollar’s fair market value is on an uphill climb. This means that the fair market value of the United States dollar will now start to climb up after reaching its bottom between during the period of November 15, 2006 to December 3, 2007. This proves that the fair market value is compulsorily needed by the investors to determine whether to invest additional money in the United States dollar. And, the above graph shows that investing in the U. S. currency is a good choice for the investor will gain when the prices of above currency starts to climb.