Are Corporations that are making a profit doing it mostly by derivative speculation?

Question

Acting like giant hedge funds?

Answer 1

Corporations in general?  No, coke makes money by putting sugar worth 1 cent in a can and selling it for $1.50.  tba

Answer 2

Well that's a difficult question to answer. Certainly it's possible that some corporations are using their excess cash reserves to speculate in the market. A phenomenal example of this kind of behavior is the company Metallgesellschaft AG, which was a giant industrial company that was ruined from its speculation in oil futures, in the early 90's. But, as the Metallgesellschaft case proved, a company cannot speculate in derivatives without taking on considerable risks, including giant swings in earnings.  And, no rational corporation's stockholders would allow a company to speculate for the sake of speculation (i.e. if earnings are volatile, stock price will fall). Certainly a little bit of speculation is occurring, but not enough to impact earnings, in many companies. On the other hand, it's wholly possible that one or two companies are speculating beyond the bounds of rationality, but those are few and far between.

Answer 3

Derivative speculation is very risky stuff.  Corporations make money on selling a product or a service.  

Why forgo something you know, for something you do not??  I just don't see the point.

Answer 4

No not at all.

99% of all corporations actually sell something. Go into any retail store and see.

With US companies, shareholders would be very upset if their money was being used to speculate in the market. That is against most corporate charters.

Many multi-national corporations (GE, PG, G, IBM, INTC, MSFT, etc) may hedge currency to reduce risks of aversive currency exchanges back into US Dollars. That is a prudent thing to do. Sometimes they make money on the currency hedge, and can translate into increased profits. This is not the goal, the goal is to be market neutral.

http://www.investopedia.com/terms/m/mark...

Answer 5

No most are not, very few treasury departments at corporations have the authority to make a one way bet or speculate on anything...I would say less than 1% are doing this while staying within their corporate policy on the issue.

- Richard

Richard Wilson

Hedge Fund Group (HFG)

http://hedgefundgroup.org