Page 64 - MA - May 2017

FINANCIAL MANAGEMENT

F postal survey on US non-financial complete the survey to make its

corporations regarding derivatives usable. Based on 4 replies received
and risk management practices from the pilot mailing, minor
and pattern of use of derivative changes were made to the original
instruments and supported by some survey. It was then decided to
other studies such as (Howton, S.D., send the survey to around 250
Perfect, S.B., 1998),. Berkman, respondents out of which only 69
inancial Derivatives H., Bradbury, M. E., Hancock, P., usable responses have been received
are the new age corporate risk & Innes, C. (2002) and Brailsford, for which at least two follow ups or
management tools adopted by T. J., Heaney, R. A., & Oliver, B. R. reminders would have made. The
corporates world-wide. Most of the (2003) undertaken two different key areas being:
large corporate entities are using studies to figure out the motives (a) Which derivatives are used, and
financial derivatives to hedge their of Australian corporates to use which type of exposure they are
exposures against varieties of risk. financial derivatives. Similarly, used for;
But still financial derivative has not there are empirical studies on (b) Reasons for using derivatives;
become the universally accepted risk pattern of derivative use in New (c)Factors of concern in derivatives
management technique. However, Zealand(Berkman et al.,1997), usage;
companies are also apprehending Canada (Jalilvand, 1999), Belgium Our questionnaire clusters
about the risk of using financial (De Ceuster et al., 2000), Sweden around three important questions.
derivatives in risk management. In (Alkebäck and Niclas, 1999), As it is mentioned above, we wanted
this paper, we have tried to unearth Taiwan, UK and Singapore (Khim the respondent to answer that
the possible determinant and and Liang,1997) at different point according to them which kind of
motivating factors as well as the of time. In the given research work, derivative instruments are mostly
concerns of the corporate entities we conduct an investigation but used by the Indian firms; motivation
in using derivatives as an accepted not based on companies because for using derivatives and concerns
risk management tool. Data has the response rate in survey of India of using derivative instruments.
been collected through Google corporate is not so impressive (8% The detail analysis of responses to
Forms from various sources like in Anand, M., & Kaushik, K. P., every question in the questionnaire
corporates, executives of broking 2008), but based on the opinion of is presented below:
firms, executives of consulting the financial professionals about the What kinds of derivatives companies
firms and other financial experts perception of Indian companies in are using to manage exposures to
like university professors and respect of use of financial derivative financial risks?
researchers. The findings of the instruments for risk management
survey imply that Indian corporates purposes. The survey questionnaire Here we have tried to ask for
pretty much interested in overall risk used is broadly focuses on the responses about the kinds of
reduction and they frequently use motivational factors influencing the derivative instruments used such
derivative instruments in managing companies to go for using financial as OTC forwards, exchange-traded
foreign exchange risk, interest rate derivatives as well as the concerns futures, OTC options, exchange-
risk and moderately use derivatives of companies about not using traded options, swaps to manage
in commodity risk management. derivatives. exposures like: currency exposure,
The survey link was sent initially interest rate exposure, commodity
Survey results and Discussion: to 10 respondents through e-mails. exposure, equity market exposure.
Bodnar et al. (1995) conducted a The respondents are requested to
Table-1
Derivative Instruments and Risk Matrix

Kinds of derivative To manage To manage interest To manage To manage equity
instruments currency exposure rate exposure commodity exposure market exposure

OTC forwards 62(89.85%) 24(34.78%) 7(10.14%) 5(7.24%)

64 The Management Accountant l May 2017 www.icmai.in