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FX Derivatives Most Widely Used in the World – ISDA Survey

Foreign exchange derivatives are the most widely used derivatives instruments in the world according to a survey by the International Swaps and Derivatives Association.

The survey, released last week at ISDA’s annual general meeting in Beijing, revealed that 94% of the world’s 500 largest companies use derivative instruments to manage and hedge their business and financial risks. Of these, 88% use foreign exchange derivatives and 83% use interest rate derivatives.

The survey found that the use of derivative instruments is common to companies worldwide: among the ten countries with the largest number of the 500 companies surveyed, all companies based in Canada, France, Great Britain, Japan and The Netherlands report using derivatives while 97% of German companies and 92% of US companies report using derivatives.

Companies in South Korea and China were least likely to report using derivatives, but 87% of Korean companies and 62% of Chinese companies nonetheless do report using these instruments, the survey found.

The companies included in the survey are headquartered in 32 different countries and represent a broad range of industries from basic materials to office equipment to retail and health care.

Usage of FX and interest rate derivatives was fairly uniform across all industries, ISDA says. Outside of financial services, 72-92% of all companies report using FX derivatives – the figure is 96% for financial services companies. ISDA says 70-94% of all surveyed companies use interest rate derivatives.

Usage of commodity, equity and credit derivatives is more concentrated among specific industries. While multinational companies across all industries use derivatives to manage foreign exchange and interest rate risk, the use of commodity derivatives is more limited, being concentrated among utilities (83%), companies involved in basic materials (79%) and financial services companies (63%).

This is the second such survey conducted by ISDA: the first, in 2003, revealed that 92% of the world’s top companies reported derivatives use.

“The survey demonstrates that derivatives continue to be an integral risk management tool among the world’s leading companies,” says Eraj Shirvani, ISDA chairman and head of fixed income for EMEA at Credit Suisse. “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.”

The survey was conducted in March and April of 2009 using information reported in annual reports of the 2008 Fortune Global 500 and, in some cases, by contacting the companies directly. Of the 500 companies included in the Fortune Global 500, eight did not report sufficient information to make a determination, ISDA says. These companies were classified as not using derivatives.

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