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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The smaller US involvement in FX derivatives arises mainly from companies in the utilities (where 31.3% of US derivative users use FX derivatives versus 100% of German users), retail (42.9% of versus 100%), and consumer goods, (66.7% versus 100%). Lower levels of IR derivatives use by US industries is found in the machinery (where 40.0% of US derivative users use IR derivatives versus 94% of German users), consumer goods (58.3% versus 88%), retail (64.3% versus 88%), and electro (66.7% versus 71%) industries. For Germany, only the utilities industry reports an exceptional low usage of IR derivatives (22.2% of German derivative users compared to 94% of US derivative users). Levels of CM derivatives usage are closer than the other two, primarily because of the greater representation in the US sample of utilities and mining firms, which are the activities most likely to use CM derivatives.
Most companies manage more than one price risk using derivatives. This is especially true of the German users, with 44.9% using derivatives in all three classes (FX, IR and CP), and 84.7% using the combination of FX and IR derivatives. The comparable number of US firms is 26.7% for all three classes and 58.0% for FX and IR. There are a few US firms, but no German ones, which use only CP derivatives.
Beyond the data given in Figure 2, we observed the use of IR derivatives and CP derivatives increasing with size in the German sample whereas there is no such pattern in the US sample. Surprisingly the use of CP derivatives decreases with the size of US companies.