A Study Of Financial Instruments Used In Multi-National Company For Foreign Exchange Risk Management

As the economic globalization continues to advance,the number of multinational companies(MNC)that operating worldwide is constantly increasing.Along with the world monetary system improving,foreign currency risk has become one of the most significant risks that faced by MNCs.Financial derivatives' application in Foreign exchange risk management has been paid more and more attentions by enterprises.Since 1985,Smith and Stulz has established hedging theory based on MM theory,many scholars have developed their theoretical and empirical researches regarding hedging with financial derivatives.However,30 years has passed,we are still lack of one widely accepted theoretical framework to guide practices.This thesis focuses on the derivatives used in foreign exchange risk management in MNCs,starting from the operating and management characteristics of MNCs,on the base of foreign exchange risk and derivatives theories,to analyze the factors that influent foreign exchange derivatives used by MNCs.By sampling financial data of 8 large and renowned MNCs of 2016 Fortune 500,the hypothesis have been made by referring to previous theoretical and empirical study results.The relationship between each of influencing factors,company's financial risk,development opportunities,cash flow,company size and multinationality,and the application of foreign currency derivatives have been assumed.Then examined by single factor and multiple linear regression analysis,results can be concluded as: there is a positive correlation between the company's financial risk and the use of foreign exchange derivatives;negative correlations with the use of foreign exchange derivatives have been seen in both development opportunities and company size;Cash flow and overseas business do not show a significant relationship with the use of foreign exchange derivatives.The case study of H Company,the world's leading multinational medical equipment company,is in the context of H Company completed a number of oversea acquisitions in 2012 and in the transition from an American local company to a multinational company.With consideration of the special circumstances of H Company's Chinese subsidiaries,this paper analyzes what factors affect whether enterprises use foreign exchange derivatives to hedge foreign exchange risks.The results are factors including company size,financial risk,cash flow,politic environment,management risk attitude,talent structure and risk exposure are all affect company's decision on whether use foreign exchange derivatives to manage foreign exchange risks.Results and conclusions from this thesis can supplement and support the empirical studies of predecessors.The results from World Top 500 Companies can be used as a reference for the practice of other developing multinational companies.The case study of H Company,is with certain reference value for enterprises in the transition from local companies to multinational corporations.