The Effects of the Application of Corporate Financial Derivatives on the Operational Efficiency of Enterprises -- the Case of Southwest Airlines

Abstract

In a situation where product prices fluctuate freely and international trade is exchanged smoothly, financial derivatives trading is essential for investors to lower risk. Due to the changing risk appetite of investors, financial derivatives trading has taken on different characteristics and the scale of trading has grown rapidly. This paper focuses on the impact of the trend of economic globalization, the majority of companies will use economic and financial derivatives to improve the operational efficiency of company. Using the case of the Southwest Airlines for analysis, an examination of the risks of financial derivatives from three perspectives, as well as recommendations on these three issues. The analysis of these issues provides a clearer understanding of the risks that companies can encounter when using financial derivatives and how to against with such risks. When faced with external risks which are difficult to budget for, there are risk-averse approaches that companies can use and remedial measures could be taken after the risks have occurred. After analyzing for these issues, it is concluded that the effects of the application of corporate financial derivatives on the operational efficiency of enterprises.