The Impact of Derivatives on Financial Stability in Turkish Economy Evidence from the Istanbul Stock Exchange and TurkDEX

This paper presents empirical evidence from the Turkish capital market by investigating the risk perception of the companies, their risk management policies and discusses the impact of derivatives on the financial stability in Turkish economy. It focuses on non-financial companies that play a vital role in foreign trade operations and have close relations with the banking industry. The results show that most of the companies give priority to currency risk, followed by commodity price risk. Surprisingly, they do not pay much attention to interest rate risk. There is also a close relationship between firm size and derivatives usage; large firms tend to use derivatives more. Furthermore, the analysis reveals that the exchange rate exposure is positively correlated with the firm leverage. Although the firms know Turkish Derivatives Exchange (TurkDEX) and are aware of derivative products, most of them are reluctant to use them because of the lack of education and experience, besides high transaction costs and volatile market conditions