The author of the thesis is working in financial department and is interested in derivative instruments. Nowadays it is very difficult to forecast interest rates and currency going up or down. That’s why this subject is topical.

The objectives of this thesis where to find out what derivative instruments companies can use for hedge of financial risks, how much companies use derivatives for hedging their loans and what are the advantages and disadvantages of derivatives.

The theoretical framework of this thesis is based on different kind of literary references from Finnish and foreign high-quality sources. Three main chapters present the theoretical background of the subject, overall theory considering definition of risk and risk management and precise description of financial risk and derivative instruments.

A desk research and a qualitative study was made to achieve the objectives of the project. The desk research was based on companies’ closing of books and annual reports from 2015. The qualitative study was implemented on theme interview.

The results showed that, companies’ used the derivative instruments for hedging of interest rate risk and exchange rate risk. Also companies used derivatives for trading. One of the companies had not any derivative instruments on 31.12.2015, but other companies had. Some companies used derivative instruments for trading or hedging or both. It varied quite a lot how many percent companies hedged for their loans.