Abstract] In the context of the financial crisis, large international and domestic enterprises have repeatedly failed in the hedging of derivative financial instruments. What exactly is the reason? Studying the definition, holding motivation, financial risk manifestations and control strategies of derivative financial instruments is of great significance to domestic enterprises for hedging and avoiding risks through derivative financial instruments. This article defines hedging of derivative financial instruments, analyzes the motivations of hedging and the manifestations of financial risks, and proposes corresponding control strategies for various manifestations, in order to correctly understand hedging of derivative financial instruments and better understand the hedging of derivative financial instruments. Use it to avoid risks and provide theoretical reference.

[Keywords] Derivative financial instruments; hedging; financial risk; financial risk control

1. Introduction

In this financial crisis sweeping the world , the misuse of derivative financial instruments has been denounced as a major evil. CITIC Pacific suffered huge losses in foreign exchange transactions, Shenzhen Nanjing Electric Co., Ltd. was deeply involved in gambling contracts, Air China and China Eastern Airlines suffered losses in the fuel market... Recently, many well-known state-owned enterprises have been exposed to have suffered huge losses in international derivatives transactions, and the market's attention has once again A focus on derivatives markets and structured options trading. Many media and the public who do not know much about the futures market mistakenly believe that futures hedging has dragged every Chinese company into the abyss. Coupled with the previous "CAO Incident", the hedging function of derivative financial instruments was obscured and distorted by these incidents to a certain extent. Faced with losses of hundreds of millions of yuan, both shareholders and banks have fallen into panic when talking about "futures". What puzzles people in the industry is that many companies claim to the outside world that they have never participated in futures speculation and that their losses are due to hedging transactions. So, why do large companies often fail in hedging? The losses exposed by CITIC Pacific, Shenzhen Nanjing Electric, Air China, and China Eastern Airlines, including the previous CAO incident, all originated from the unregulated over-the-counter financial derivatives market. Foreign The role of investment banks must be investigated. Therefore, it is necessary to have an in-depth understanding of the meaning, functions and specific manifestations of financial risks of derivative financial instruments, and to adopt various control strategies in a targeted manner so that the hedging function of derivative financial instruments can play a positive role and allow Chinese enterprises to fight on the "away field" , repeated victories have important guiding and practical significance. This article first explains the meaning and motivation of hedging derivative financial instruments, then discusses the various manifestations of financial risks in hedging, and finally puts forward corresponding control strategies for various financial risks.