Enhancing Financial Resilience: A Critical Analysis of FX Derivative Risk Disclosures and the Path Forward with the Delta-Transparency Framework
This study examines the systemic challenges in foreign exchange (FX) derivative risk disclosures, emphasizing the disconnect between theoretical risk mitigation benefits and persistent opacity in reporting practices. Analyzing empirical data from pre- and post-financial crisis periods (2005–2025), t...
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| Format: | Article |
| Language: | English |
| Published: |
EDP Sciences
2025-01-01
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| Series: | SHS Web of Conferences |
| Online Access: | https://www.shs-conferences.org/articles/shsconf/pdf/2025/09/shsconf_icdde2025_02026.pdf |
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| Summary: | This study examines the systemic challenges in foreign exchange (FX) derivative risk disclosures, emphasizing the disconnect between theoretical risk mitigation benefits and persistent opacity in reporting practices. Analyzing empirical data from pre- and post-financial crisis periods (2005–2025), the research identifies critical flaws in compliance with standards such as FASB 133/161 and SEC regulations, including selective omissions, textual vagueness, and misalignment between derivative strategies and actual exposures. Case studies, such as the 2012 JPMorgan “London Whale” scandal and the 2008 crisis, underscore how inadequate disclosures exacerbate systemic risks, leading to investor losses and market instability. The study introduces the Delta-Transparency Framework, integrating fintech innovations (e.g., machine learning for real-time risk tagging, API-driven regulatory-enterprise data bridges) and dual materiality thresholds to automate exposure quantification, reduce manual errors by 57%, and enhance investor confidence. Empirical findings reveal that enhanced disclosures correlate with reduced bid-ask spreads (15%) and lower equity costs (9.2%), while superficial compliance exacerbates volatility. The framework addresses emerging market challenges, such as liquidity constraints and regulatory fragmentation, by proposing harmonized global standards and AI-driven governance tools. Ultimately, the research advocates redefining derivatives disclosure as a cornerstone of risk governance rather than a compliance formality. It calls for regulatory harmonization, SME capacity-building, and predictive risk management strategies leveraging blockchain and AI to navigate 21st-century financial complexities. |
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| ISSN: | 2261-2424 |