Derivatives and Financial Crisis: The Costs of Speculation in Brazil (Aracruz and Sadia)
14 Pages Posted: 7 Sep 2012
Date Written: October 7, 2011
Abstract
This study aimed to verify the speculation costs incurred by Aracruz and Sadia due to their high degree of leverage with derivative instruments. The main results evidenced agency problems, with disproportionate investments in hedge transactions. Faced with a sudden appreciation of the US dollar, resulting from the exacerbation of the global financial crisis, the firms took heavy financial losses of R$ 4.7 billion reais for Aracruz and R$ 2.6 billions for Sadia. Investors witnessed Sadia and Aracruz shares end 2008 down about 70% against 28% of the market index.
Keywords: Financial crisis, Derivatives, Discounted Cash Flows (DCF), Valuation, Aracruz, Sadia
JEL Classification: G01, G15, G23, G32
Suggested Citation: Suggested Citation