At its 24th Annual General Meeting in Beijing, the International Swaps and Derivatives Association, Inc. (ISDA) today announced the results of a survey of derivatives usage by the world’s 500 largest companies. According to the survey, 94% of these companies use derivative instruments to manage and hedge their business and financial risks.
This is the second such survey conducted by ISDA: the first was in 2003. The results of this most recent survey show that derivatives use among large corporations continues to grow.
The companies included in the survey are headquartered in 32 different countries and represent a broad range of industries from basic materials to office equipment to retail and even health care. The survey found that the use of derivatives is common to companies worldwide: among the ten countries with the largest number of the 500 companies surveyed, all companies based in Canada, France, Great Britain, Japan and The Netherlands report using derivatives while 97 percent of German companies and 92 percent of US companies report using derivatives. Companies in South Korea and China were least likely to report using derivatives, but 87 percent of Korean companies and 62 percent of Chinese companies nonetheless do report using these instruments. – more –
The survey found that foreign exchange derivatives are the most widely used instruments (88 percent of the sample), followed by interest rate derivatives (83 percent) and commodity derivatives. Usage of foreign exchange and interest derivatives was fairly uniform across all industries (outside of financial services, 72 to 92 percent of all companies report using foreign exchange derivatives—the figure is 96 percent for financial services companies) and 70 to 94 percent of all surveyed companies use interest rate derivatives.
Usage of commodity, equity and credit derivatives is more concentrated among specific industries. While multinational companies across all industries use derivatives to manage foreign exchange and interest rate risk, the use of commodity derivatives is more limited, being concentrated among utilities (83 percent), companies involved in basic materials (79 percent) and financial services companies (63 percent). Not surprisingly, financial services companies are the heaviest users of credit and equity derivatives, since much of their inherent business risk is concentrated in those areas.
"The survey demonstrates that derivatives continue to be an integral risk management tool among the world’s leading companies," said Eraj Shirvani, ISDA chairman and head of Fixed Income for EMEA at Credit Suisse." Across various geographic regions and industry sectors, the vast majority of these corporations rely on derivatives to hedge a range of financial risks to which they are exposed in the normal course of business."
The survey was conducted in March and April of 2009 using information reported in annual reports of the 2008 Fortune Global 500 and, in some cases, by contacting the companies directly. Of the 500 companies included in the Fortune Global 500, eight did not report sufficient information to make a determination. These companies were classified as not using derivatives.
