Isda AGM: 94% of world's largest corporates use derivatives

Ninety-four per cent the world's largest corporates use derivatives to hedge their business and financial risks, according to a survey of the Fortune Global 500 companies by the International Swaps and Derivatives Association (Isda), released at its 24th annual general meeting in Beijing. The number is an improvement on Isda's previous survey in 2003, when 92% of the world's leading companies reported derivatives usage.

Foreign exchange derivatives were the most popular type of contract (used by 88% of respondents), followed by interest rate derivatives (83%), commodity derivatives (49%), equity derivatives (29%) and credit derivatives (20%).

The survey also highlighted sector and geographical trends. Forex and interest rate derivatives were used most widely across all industries. The range of respondents employing foreign exchange derivatives was 72% to 96% depending on the industry; the range for interest rate derivatives was from 70% to 94%.

Other types of derivatives contract were more industry-specific. For example, commodity derivatives were mostly used by utility companies (with 83% of respondents reporting use) and companies involved in basic materials (79%), while financial services firms were the main users of both equity derivatives (80%) and credit derivatives (76%).

All companies based in Canada, France, the UK, Japan, Switzerland and the Netherlands affirmed they used derivatives, compared with 97% of companies in Germany and 92% of US corporates. Asian corporates showed a lower level of derivatives use: 87% of South Korean corporates and 62% of Chinese corporates reported derivatives use.

"The survey demonstrates that derivatives continue to be an integral risk management tool among the world's leading companies. 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," said Eraj Shirvani, Isda's chairman and head of fixed income for Europe, the Middle East and Africa at Credit Suisse.

See also: Isda AGM: China on course to further develop derivatives