DO YOU KNOW WHERE YOUR DERIVATIVES ARE?

This paper is designed to assist individuals and organizations in understanding the role and risks of derivatives in two specific areas -- debt management and investing. The various risks associated with derivatives are discussed in this article. Similar to collateralized debt obligations (CDOs) and CDOs squared, derivatives also have the potential to be the next financial engineering bubble to burst. The SEC is concerned that investors do not understand the risks with more complex ETFs and abbreviated disclosures. Institutions, including Harvard University, have already lost millions on interest rate swaps. Individuals and organizations should take the time to educate themselves as to the serious potential risks involved with these instruments.