Interest Rate Risk Management by Financial Engineering in Pakistani Non-Financial Firms

Taqadus Bashir, Shujaat Khalid, Kanwal Iqbal Khan and Saman Javed

MPRA Paper from University Library of Munich, Germany

Abstract: The study aimed to investigate firm decisions of using interest rate derivatives and factors affecting this decision. Study is conducted by selecting data of 191 non-financial sector companies listed on PSX from 2010 to 2015. Logit model was employed to detect contribution magnitude of foreign sales, profitability, leverage, liquidity, price to earnings, interest coverage ratio and dividend payout towards decisions by a firm of using the interest rate derivatives. The expected users of interest rate derivatives for purpose of interest rate exposure management were the firms with high foreign sales, lesser leverage, low profits, low dividend payout ratio and low interest coverage ratio. The examination concludes that these derivatives are financial engineering tools and serve as immunization instruments for a firm from anticipated future financial risk.

Keywords: Risk management; Interest rate derivatives; Foreign sales; Hedging; Panel logit model (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2019-09-01
New Economics Papers: this item is included in nep-cfn and nep-rmg
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