The use of financial derivative contracts by non-financial corporations has grown rapidly over the last two decades, yet to date there is little consensus regarding both how and why firms use derivatives. Especially lacking are comprehensive data on the use of derivatives by non-financial firms outside of the United States even though these firms represent the majority of users. This paper takes a step toward filling the gap by examining the use of financial derivatives by 7,309 companies in 48 countries including the U.S.—the largest and broadest sample of firms studied to date.

This research has four main objectives. First, we seek to document the usage of foreign exchange (FX), interest rate (IR), and commodity price (CP) derivatives and compare characteristics of users across countries and firm type. Our results show that in many countries outside the United States firms commonly use derivatives. Across all countries, more than half of the sample firms (54.3%) use some type of financial derivative. More precisely, 35.9% of the firms use FX derivatives, 32.0% interest rate derivatives, and 9.2% use commodity price derivatives. For the 2,243 U.S. firms in the sample, the rates are similar: 59.3% of firms use some type of derivative with 30.9% using FX derivatives, 39.8% using interest rate derivatives and 15.2% using commodity derivatives. We find that the type of derivatives used varies across the different classes of financial risk. For example, 28.1% of firms use forwards to hedge FX risk and 10.8% use swaps. Usage rates are reversed for interest rate derivatives where swaps are the most popular risk management instrument (used by 28.6% of firms) and forwards are used by only 0.8% of firms. The use of non-linear derivatives varies less across types of risk: 9.4% of firms use FX options, 7.4% of firms use some type of non-linear interest rate derivative (e.g., option, cap, floor, and/or swaption). In contrast to the low usage rates for FX and interest rate futures contracts, commodity price risk is most frequently managed with futures (which are used by 3.1 % of firms or roughly a third of commodity price derivatives users).