| Summary: | Included bibliographical references (leaves 52-55). === This paper is a study of the use of derivatives by the smallest companies listed on the Johannesburg Stock Exchange (JSE). The size of the company is measured in terms of its market capitalisation. The sample of companies chosen for review is roughly comparable to the small companies referred to in the studies of Bodnar, Hayt, Marston and Smithson (1995) and Bodnar, Hayt, and Marston (1996; 1998) and similar studies that followed in various other countries. The objective of the study is to test the hypothesis that… 1. the use of derivative by small South African companies will be aligned to international trends, 2. that companies in the primary sector will demand derivatives mainly for the management of exposure to commodity price risk, 3. that manufacturing companies will demand derivatives mainly for the management of foreign exchange risk and that the instrument of choice will be forwards, 4. and finally, that companies who use derivatives for the management of interest rate exposure will show an overwhelming preference for swaps as an instrument of choice. The study supports the third and fourth hypothesis. The first hypothesis is not supported given the lower demand for derivatives shown compared to international trends, although the trend in South Africa is in line with earlier studies of Bodnar, Hayt, Marston and Smithson (1995) and Bodnar, Hayt, and Marston (1996; 1998).
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