Abstract:
Risk management has become a vital part of businesses all over the world and firms adopted various risk
management techniques to manage risk. This study examines derivatives use in randomly selected 94 listed companies in
the Colombo Stock Exchange (CSE), Sri Lanka representing four industry sectors. We find that 41% of the selected firms
used derivatives. When we analyze different industry sectors Banking, Finance and Insurance sector recorded fairly low
percentage (36%) of using derivatives. In contrast to this Diversified holding companies depicts highest percentage (71%)
of derivatives usage. Developed derivatives market yet to be emerged in Sri Lanka and however, there is an increasing
trend of using derivatives by Sri Lankan companies. Size of the company has an impact of using derivative instruments.
Interest rate swaps, currency swaps and forward exchange contracts mainly used to manage risks in Sri Lankan companies.
