The Research On Derivatives Investment Of China’s State-Owned Enterprises

From the global financial crisis which tirggered by Wall Street’s subprime mortgage crisis in 2007, the derivatives has been particularly concerned by the market, the excessive innovation by the wallstreet investment banks and the lack of supervison by authorities is considered the main reason for the crisis. There are also a number of huge losses of the state-owned enterprises which caused by the investment in derivatives have been revealed by the major media, such as the crude oil hedging with Air China and China Eastern Airlines,the FFA hedging with China’s cosco, the leveraged foreign exchange contracts hedging with CITIC Pacific.These huge losses of the listed companies raised investors doubts on China’s enterprises’s investment in derivatives, and the practice that several major aviation companies hedging by selling the put option also caused extensive controversy.In the mean time,more and more companies need to hedge with the derivatives against the backdrop of the fluctuation of commodity prices, interest rates and exchange rate, but there are still lots of companies cann’t use the derivatives even if they are in need as they don’t know it well especially with their risk characteristics. Therefore,how to view the derivatives and how to use them properly is getting concerned by more and more people.The derivatives which derived from the financial instruments mainly include four forms such as forward contracts, swaps, futures, options. They’ are the products that the financial markets developed to a certaim stage,in the early age they showed the functions of risk diversification and price discovery, but with they also caused a great loss of the large international companies.So derivatives have been considered a "double-edged sword", especially since the outbreak of the China National Aviation Fuel incident. the Chinese authorities concluded that the enterprises can n’t engaged in the international market derivatives transactions. This is not the fundamental way to solve the problem because the exchange rate and interest rate risks wasn’t eliminated, the key issue is how can companies make good use of positive side and avoid the negative side.In finance, a hedge is a position established in one market in an attempt to offset exposure to price fluctuations in some opposite position in another market with the goal of minimizing one’s exposure to unwanted risk. Moreover, with the continuous development of financial derivatives, the range of hedging instruments are increasingly broad, more and more enterprises have begun to use the swap or option and other financial derivatives to hedge.This paper has five chapters. The first chapter mainly introduce what the derivatives is, and I give my own definition with the conclusion of many scholars that the derivatives is a contract which the price is based on one or more basic variables. The second chapter is mainly on the definition of derivatives hedging behavior and the methods of how to get the optimal hedge ratio. The third chapter is mainly on the description of the derivatives investment status of China’s state-owned enterprises. The fourth chapter is mainly the introduction of the cases of derivatives investment with China Eastern Airlines and CITIC Pacific and give the problems after the analyze of the cases. The last chapter give the reflections of the investment in derivatives and the recommendations for risk prevention from the regulatory level and corporate level.As the limitation of my knowledge and academic level, it’s inevitable to make some mistakes in this paper, I adjure teachers and classmates to make a comment or criticism...