Risk Management Using Derivatives: Review of Literature

Abstract

Changes in exchange rates, interest rates and stock prices of different financial markets have increased the financial risk to the corporate world. This has increased the core value of risk management & developed it as a specialized field. Derivatives served a useful purpose in fulfilling risk management objectives.

Purpose-This paper aims at determining the utilization and significance of Derivatives in Risk Management practices around the world.

Design-This paper is a summary and analysis of previous studies related to the use of derivatives in five different fields of risk management- Financial Risk, Corporate Risk, Currency Risk, Interest Rate Risk and Weather Risk.

Findings-Numerous researches related to the use of derivatives by companies in many countries have general conclusion that most of the companies are dependent on financial derivatives in their risk management strategies and the use of derivatives by institutional investors is widespread, covering all investor categories and sizes.

Originality/Value- This paper fulfils an identified need to study how derivatives served a useful purpose in fulfilling risk management objectives.