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1、 Derivative financial instruments in corporate financial management in the use ofDerivative financial instruments refer to cash, securities and causing some kind of hand-held contractual rights and obligations arising from the contract. The basic operations are focused in the financial forwards, fin
2、ancial futures, financial options, financial swaps. Derivative financial instruments is the product of economic development, financial market turbulence to produce a necessity and is characterized by its biggest leveraged and high risk. The background of derivative financial instruments and characte
3、ristics have determined that it will be widely used by people, with its common and specific uniqueness of derivative financial instruments in financial management to solve business problems encountered. A, derivative financial instruments in corporate finance in the use of First, the use of derivati
4、ve financial instruments can avoid or reduce the financial risks of corporate finance. Derivative financial instruments, leverage can be used for risk-averse, risk avoidance is also the derivative financial instruments have been designed in mind. A few years ago, China to Japan, the process of borro
5、wing foreign capital, due to lack of experience, did not anticipate the enormous impact of exchange rate risk and therefore did not take any risk prevention measures, resulting in the depreciation of dollar against the yen to make China an additional case of several billions of dollars in additional
6、 debt burden. At that time my funds borrowed yen and loan companies are all converted from yen into U.S. dollars (at the time companies need U.S. dollars), enterprise Eventually, even further back to U.S. dollars with interest, my country at the time the case of the weak dollar would also like to tu
7、rn back the yen the dollar will recover the debt, which undoubtedly greatly increased the debt burden. This enterprise is often encountered. For example, companies have a low-interest yen loans, the future will have the dollars of income for loan repayment, while the yen the dollar will have a downt
8、urn. If this derivative financial instruments used for risk prevention does not increase the debt burden. The simplest, in order to prevent the depreciation of the dollar recovered soon able to sign the forward foreign exchange contracts to sell U.S. dollars to do a buy yen forward foreign exchange
9、transactions, so that can determine the balance of payments, subject to exchange rate movements against the impact. Raising funds in international financial markets will always experience an increase due to exchange rate fluctuations in the real debt burden, the risk of another way to hedge is the u
10、se of financial futures to hedge. Suppose companies wishing to import a number of raw materials in September, require a large number of U.S. dollars, although the forecast the dollar will be greatly increased, but could do without a lot of money can be used to purchase U.S. dollars spot Moreover, id
11、le, and uneconomical to buy U.S. dollars. At this point, the company can buy in the financial markets in September U.S. dollar futures contracts, the contract about to expire before the fully funded dollars needed to purchase stock, while selling futures contracts. If the exchange rate really as pre
12、dicted, the increase was earned by the futures market positions can be offset by the cost of buying U.S. dollars cash to the actual cost reduction; if the exchange rate change in the opposite direction toward the spot market, the savings will offset losses on the futures market, . At the same time t
13、hrough different parts of the trading operation, to achieve the climate preservation purposes. Thus, derivative financial instruments business in the financial markets are indeed indispensable for hedging risks. Second, the derivative financial instruments to provide financing for the enterprise a m
14、ore flexible and effective means, while also reducing the cost of financing. Suppose a Bank of China hopes to issue bonds in the European market to raise 100 million U.S. dollars, but the problem is that this well-known bank in Europe is not high, in which case the cost of issuing bonds must be very
15、 high. At this point, banks can issue Samurai bonds in Japan (in yen-denominated foreign bonds), followed by Japanese yen and U.S. dollars through currency swaps to obtain the required final Euro-dollar. In this indirect way, business is very flexible and not set foot in the capital markets have gai
16、ned cost advantages in funds. Enterprises can significantly reduce financing costs, mostly due to the use of financial swaps, while the financial swaps to a significant reduction in financing costs that no other derivative financial instruments do not have the advantage swap market is known as the b
17、est financing market. With IBM Corporation and the World Bank in August 1981 carried out a successful currency swap, for example, you can explain exchange in reducing the role of fund-raising costs. In August 1981, the United States Salomon Brothers, IBM and the World Bank for a currency swap arrang
18、ement. At that time most of IBMs assets to the dollar in order to avoid exchange rate risks, hoping its liabilities for U.S. dollars with symmetry; the other hand, the World Bank hopes to Swiss francs or deutsche mark, the lowest rate of such absolute liability management currency . Meanwhile, the W
19、orld Bank and IBM companies in different markets have a comparative advantage, the World Bank financing through the issuance of dollar bonds in Europe, the cost of raising U.S. dollars lower than IBMs cost of funds; IBMs financing through the issuance of Swiss franc bonds, the cost is also lower tha
20、n the World Banks financing of Swiss francs in costs. As a result, brokered by Salomon Brothers, the World Bank issued 2.9 billion of its Euro-dollar bonds and IBMs equivalent of the deutsche mark, Swiss franc bonds swap, each reached a lower funding costs. According to European currencies magazine
21、in April 1983 number is estimated that through this exchange, IBM will 10% of the deutsche mark interest rate debt converted into 8.15% interest rate (on a biennial basis) of the dollar-denominated debt, World Bank 16 % interest rate debt converted into U.S. dollars for the deutsche mark 10.13% inte
22、rest rate debt. This shows that the effect of reducing the cost of financing is quite obvious. Reposted elsewhere in the paper for free download Third, the use of derivative financial instruments facilitate the adjustment of corporate capital structure. Capital structure is an enterprise with long-t
23、erm funding sources and the ratio of the composition. The use of derivative financial instruments to adjust its capital structure to businesses brought more way. Mentioned earlier, IBM, carried out with the World Bank is currently recognized as the worlds first official currency swap operations, IBM
24、 Corporation and the World Bank on their capital structure to achieve the purpose of the adjustment. The World Bank in Europe, Euro-dollar bond market to raise capital financing costs are lower than IBM, but IBMs Swiss franc bond issue less than the cost of financing the World Bank. At the same time
25、, IBM expects to increase in dollar liabilities to their U.S. dollar assets symmetry, in order to avoid exchange rate losses. The World Bank, Swiss francs or deutsche mark, the need for liability management. Two in their proper place just from the exchange, have achieved the purpose of adjusting the
26、 capital structure. Adjust the capital structure of enterprises should seize the unique advantages of financial swaps to operate, through the exchange, funding can more easily raise to any period, currency, interest rate funds. 2, derivative financial instruments in use in business investment In add
27、ition to financing the process of corporate use of derivative financial instruments, as regards the investment process in derivative financial instruments can also play a big role. First, the derivative financial instruments could enable enterprises to leverage the investment process with a small br
28、oad access to risk-adjusted returns. Derivative financial instruments transactions, generally deal only when the contract is equivalent to the amount of deposit or to pay a very small proportion of the bond or royalties, the contract will control all the assets, so the leverage is very obvious. This
29、 gives companies willing to take risks with a good profit opportunities. The easiest way is to obtain the risk premium to buy low sell high, this is the way of any speculative nature. Taking the financial futures, for example, a financial futures speculators forecast prices will rise on buying in th
30、e future, and so the price is really up on the throw; or bearish forecast of a financial futures prices before selling, so prices fall and buy income, for liquidation, which is spread arbitrage. In the same futures market can also use the same commodity but different delivery month futures price cha
31、nges in the difference between the hedging profit, or use two different but related commodities to arbitrage trading between the spread. If an enterprise well-informed can also use the same commodity futures exchange in different spreads taking profits to cross-market arbitrage. All derivative finan
32、cial instruments can be used to win the risks of speculative gains, the difference lies only simplified the operation and the size of the risk. Leveraged nature of derivative financial instruments that want to obtain the benefits without the risk of a large number of idle funds of the enterprises to
33、 provide a great convenience. Second, the derivative financial instruments to help companies to reduce the risk of the investment process, and increase revenues. Companies to invest in the stock market there will always be risks, and in general a high return on investment of financial assets and lia
34、bilities should be larger. In this regard, financial management generally use different types of financial assets relative to portfolio to reduce investment risks. However, an effective portfolio and then can not circumvent the systemic risk. Obviously the emergence of derivative financial instrumen
35、ts to solve this problem. Derivative financial instruments can be a market economy, market risks, credit risks and so scattered in every corner of the socio-economic risk concentrated in a few options on the market or exchange, forwards and other OTC markets, the risk to focus, then split , and then
36、 re-allocation. So that hedgers out through a certain method to avoid most of the normal business risk, rather than assume or bear only very little of it. Taking the financial options, for example, assume that company bought his bond futures prices suddenly drop, businesses can buy put options would
37、 lose lock, it is not only to pay a small amount of deposit will be able to ensure that enterprises owned by government bonds futures within a certain period of time so that enterprises sold at a price more satisfied. If the maturity Treasury bond futures prices of non-performing companies can give
38、up this right, the price is only a small amount of margin. This approach to the portfolio than the simpler more effective. At the same time, financial options, the derivative financial instruments to hedge the risk in the case of no additional changes in the market could still seize the profit oppor
39、tunities in their favor, which gives investors a near-perfect means of hedging and speculation. For businesses in terms of financial management, derivative financial instruments in the financial markets there is no doubt on the use of funds for the money provides a new way. With the accelerated pace
40、 of world economic integration, Chinas enterprise financial management will be more involved in the international financial markets. The ever-changing face of international financial markets, we must learn and master the derivative financial instruments to be used in practice. Reposted elsewhere in the paper for free download
