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Business and Financial Policies and Procedures

14.6 Enter into a Derivatives Agreement to Manage Risk

Policy Statement

Derivatives are financial instruments to hedge risk. They protect the value of an asset or limit a financial obligation by the University of Illinois System.

Only University Investments may speculate in financial derivatives.

According to the Board of Trustees' policy, certain units may use derivatives to manage the risk of increased financial cost. Some examples include:

  • Manage price risk more efficiently
  • Take advantage of market opportunities to reduce debt service cost
  • Reduce cost and price risk of energy commodities
  • Improve response/reaction time to market fluctuations
  • Reduce agricultural commodity price risk

Units may not enter into contracts for derivatives without consulting the Office of Enterprise Risk Management and obtaining the subsequent approval of the Chief Financial Officer.


To enter into a derivatives agreement to manage risk:

  1. Conduct a risk evaluation to demonstrate your need for a derivative. Document that you have appropriate internal controls to manage the instrument according to the Board of Trustees' Derivatives Use Policy. If you need assistance in creating these two documents, consult with the Office of Enterprise Risk Management.
  2. Consult the Office of Enterprise Risk Management who will help you find the appropriate way to meet your needs.

Additional Resources

Derivatives Use Policy

Last Updated: June 27, 2011 | Approved: Senior Associate Vice President for Business and Finance | Effective: November 2010

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