Question

What is the importance that have derivatives to corporate finance?

Answer 1

Financial derivatives play a significant role in corporate finance. The corporate use of derivatives in hedging interest rate, currency, and commodity price risks is growing and widespread. Derivatives can be helpful to hedge risks, act as the building blocks for analysis of corporate credit risk, and serve as analytical tools for valuation of various corporate investment projects that have built-in flexibility. The hedging and speculation strategies, along with financial derivatives, are helpful techniques that enable corporate to more effectively manage risk. These also improve the market efficiency for the underlying assets.