Improving hedging decisions for financial risks of construction material suppliers using grey system theory

Abstract

Many companies recently have attempted to use derivatives to hedge the risks of the fluctuations in the price of materials in the global markets as well as variations in currency exchange rates and interest rates. This study investigates the relationship between derivatives and corporate financial statuses through grey relational analysis (GRA) and grey decision making (GDM). Twenty-eight types of financial ratio data were collected from 29 construction materials suppliers from the Market Observation Post System and Taiwan Economic Journal in Taiwan over the last decade. The results of the combination of GDM and five forces of financial analyses presented the suggested value of financial ratios that were suitable for derivative usage. GRA and GDM could be useful tools for predicting the proper time to use derivatives for a company's development, especially for firms that lack experienced experts.