A Case Study Of BMW Using Derivatives To Prevent Financial Risks

As one of the earliest multinational companies to establish a sales network in the international market,BMW enjoys foreign exchange income due to the substantial growth of international business,while on the other hand it faces increasingly serious financial problems due to its large amount of the foreign currency.In order to reduce the financial risks,BMW has been able to effectively use derivatives to prevent financial risks after more than 20 years of continuous exploration and improvement.Since China joined the WTO in 2001,more and more multinational companies are facing financial risks like BMW.Although they try to use derivatives to prevent such risks,due to insufficient management attention,shallow conceptual understanding,lack of enterprise experience and related talents,as well as the system of China's capital market is not perfect,making the risk management of companies less effective.Therefore,this paper analyzes and refines how BMW successfully using derivatives to reduce financial risks,hoping to give reference to the domestic enterprises in China.This paper first describes the internal operation of BMW and the external macro market environment,and describes the company's risk prevention implementation process of currency risk,commodity price risk and liquidity risk.Then,the paper analyzes how BMW using derivatives to prevent these financial risks from three aspects: motivation of using the derivatives,the generation mechanism and management methods of three types of financial risks,and the application effects of derivatives.The analysis shows that BMW's financial risk management meets the development needs of BMW's growing international business and has a positive effect on the company's financial risk reduction and financial performance improvement.Finally,the paper summarizes the key points learned by BMW in the process of using derivatives to prevent financial risks,and try to provide reference for other companies.The study found that in order to effectively manage financial risks,it is necessary to clarify the purpose of enterprises participating in derivatives trading,that is,to avoid risks rather than speculative arbitrage;Secondly,large multinational groups can consider establishing molecular companies in different countries and regions when they produce and sell products.While improving their bargaining power,they use natural hedging and selective hedging strategies to reduce exchange rate fluctuations and commodity price fluctuations for the impact of profitability.In addition,the establishment of a global foreign exchange management company to manage all the debts and foreign exchange in the group can improve the efficiency of asset management and reduce costs.Thirdly,enterprises should reasonably choose the types of derivatives and the settlement currency,that is,they should hedge in areas that they need and are familiar with,and the choice of derivatives should not be too complicated;Fourthly,in the unstable futures market,the use of hedging accounting can more accurately reflect the actual state of the financial statements,reducing the impact of derivative price fluctuations on profit and loss.Fifthly,for high-rating companies,they should make full use of their rating advantages and more to finance with lower-cost credit bonds.Last but not least,the identification of risks and the implementation of measures are inseparable from an efficient risk management system.It can help companies identify possible risks in real time,alert them to abnormal fluctuations,and help management select appropriate risk prevention measures to eliminate related financial risks in advance.