Use of Financial Derivatives in Indian Companies: An Assessment

Abstract

Eminent researchers from all around the world have produced outstanding research and up-to-date empirical studies that have successfully and convincingly captured the corporate trend for risk management to increase the value of the organization in some way. It is accepted practice to view corporate risk management as a crucial component of a company's entire business strategy. On the basis of review of literature and discussion this research work has been planned on sampled Indian companies where the use of financial derivatives. From the research it was found that foreign currency risk is the most hedged risk, with OTC forward contracts being the most used derivative instrument. It has also been discovered that Indian companies use derivative instruments to hedge against variations in cash flow, whereas companies in the Western world use derivative instruments to hedge against accounting earnings. Concerning the companies' concerns about using derivatives, the responses show that the cost of hedging compared to the benefits, a lack of knowledge about derivatives within the firm, and perceptions of investors, regulators, and the public are the three major constraints that Indian companies are concerned about using financial derivatives.