fundsWe use the transaction data and rating changes from Bankscope, WIND and China Chengxin International Credit Rating Co., Ltd. (CCXI). CCXI was licensed by the People’s Bank of China and the Ministry of Commerce in 1987 and is the first Sino-foreign joint venture which was set up in 2006 between Moody’s and its parent company, with Moody’s holding 49% stake in CCXI and having an option to increase its ownership over time as permitted by Chinese authorities.

Table 1 reports the name and ticker of 23 Chinese commercial banks who issued subordinated bonds between 2006 and 2011. This table also shows the total assets of these banks by the end of 2011 and relevant country rank and world rank based on their total assets. Affected by the huge credit scale, the capital adequacy ratios of all Chinese banks declined sharply in the past few years. The capital adequacy ratios in some banks were even lower than 8 percent before 2009. Under heavy pressure, all banks, especially medium- and small- size banks had to attempt all means to raise capital. They showed special interest in subordinated bonds although it is not the only way to raise funds. To raise your funds is rather easy with Speedy Payday Loans and website – suggested such a service as approving credits online.

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The results for the US firms do not appear to be much different as again more than 90% hedge the transaction exposure from foreign currency denominated contractual commitments either intra-firm foreign repatriations (e.g. dividends, royalties, interest and payments on intracompany loans) are a special group of contractual commitments or anticipated transactions. Both in the US and in Germany more than one third of FX derivative using firms hedge these types of exposures frequently while another third does so sometimes. This practice implies that hedging decisions are taken from the perspective of parent company and its shareholders. It is interesting to notice that the new US draft-statement on accounting for derivatives now reflects this view and allows for hedge accounting for qualified hedges on intracompany transactions.
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The recommendation of the finance literature is not to worry about this type of exposure as it is not a cash flow effect and more specifically not to hedge it. From Table 3, we learn that the vast majority of US and German firms follows this recommendation. However, a considerable number of US companies do care as they declare to hedge translation exposure frequently (15.3%) or sometimes (14.1%). One might be surprised that German firms hedge this type of exposure less frequently. This result is not inconsistent with the particular emphasis placed by German companies on accounting earnings as discussed above in section III.B. It should be noted that in Germany corporate income taxes and dividend distributions are in principle not based on the consolidated group financial statements but on the individual financial statements of the parent company and its subsidiaries.
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Exposures Hedged

We already outlined in section III.A that the prime area of derivatives usage is FX management for both US and German firms. An important question to be considered is how companies define exposure. It is common in the international finance literature to distinguish between translation exposure, transaction exposure, and economic exposure.
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German GAAP currently include no specific accounting rules for derivative and hedging but require, on principle, the application of the general lower of cost or market rule to a derivative and to a hedged item. There is a controversy about the extent to which hedge accounting might be allowed with the ruling majority restricting this to effective micro hedges.10 Because of the favorable tax implications of this approach, German companies are not too uncomfortable with this situation. However, a considerable number of the largest German companies voluntarily disclose information about their use of derivatives in their annual reports along the lines of the recommendations of the FASB or the IASC.  Still only occasionally, but increasingly, they report about an extended use of hedge accounting for their more advanced macro or portfolio hedging approaches.
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The questionnaires next identified some areas of possible concerns by management when using derivatives and asked firms to rate their degree of concern with each issue. Figure 3 summarizes the results.
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Many US firms report “high” or “moderate” concerned with all twelve issues raised whereas German firms express little concern with almost all of the issues. These results give rise to several questions: Why are US firms more anxious when using derivatives? Are German companies ignorant of the risks implied in the list of concerns or are they more confident in mastering those risks? The perception by the public is the only issue where slightly more than 20% of the German companies are highly concerned with another 15% indicating moderate concern. This is one of the major issues with the US firms but not the most important one.
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One is tempted to argue that accounting earnings matter to managers because of their relevance to analysts’ perceptions and predictions of future earnings and because of their relevance in management compensation. Both arguments are less relevant for smaller companies that are typically more often closely held and hence should have less incentive to focus on earnings. However, from Table 2 we can infer that smaller companies stress accounting earnings more often as a hedging goal than larger companies.
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Again a striking result is that 23.9% of the US and 42.6% of the German firms distinctly denoted this as a non-important goal.
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These results raise an interesting question: why do so many US and German managers ignore the recommendations of the theoretical finance literature? Looking at the breakdown by size in Table 2 one is tempted to argue that the results depend on the level of sophistication of management. The relevance of the cash flow as well as the firm value objective of risk management using derivatives increases and the relevance of the accounting earnings objective decreases with size. For two thirds of the largest US companies and for almost half of the largest German companies derivatives hedging is primarily directed to a cash flow objective. There are no US and only three German firms in the largest size group that think of cash flow as an unimportant hedging objective. Larger companies in both countries are more often concerned with firm value when designing hedging strategies.
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The most important role for derivatives is for risk management, and an important issue in risk management is defining its goals. The theoretical financial literature strongly recommends focusing on cash flows or on the value of the company. A focus on accounting numbers is generally discarded. However, the results in Table 2 reveal that managers are also concerned with accounting numbers and use earnings and/or balance sheet accounts (especially equity) as objectives in risk management. quick cash payday loans online
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Areas of Use

Figure 2 reveals that US and German companies use derivatives primarily to manage foreign exchange (FX) and interest rate (IR) risk. Almost all German users, 95.9% employ derivatives in FX management and 88.8% employ derivatives in IR management. The comparable figures for the US firms are once again smaller, 78.6% and 75.9%, respectively. Considerable attention is placed also on commodity price (CP) risks by US and German companies with around 40% of firms in each country reporting usage
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