HONG KONG'S corporates are light years away from some of their more adventurous counterparts in the Western world when it comes to derivatives, seeking risk-management - not fast money. 'They are very much liability managers,' said Andrew Fung, manager of swaps and trading with HSBC Markets. 'There are only a few corporate centres which are profit centres. They are not supposed to make money.' Instead, their brief is to minimise risk, according to Mr Fung, who said the territory did not have a Procter & Gamble (P & G) or Gibson Greeting Cards, which had been burnt by derivatives. A derivative is an instrument whose value derives from an underlying asset, such as a share or a bond. P & G lost US$102 million early this year when a contract it bought from Bankers Trust hit the rocks. The contract, a bet that US rates would decline, lost money quickly after rates started moving up after February. P & G sued Bankers Trust for $130 million. Gibson lost money on derivatives bought from Bankers Trust and sued it for $73 million before settling out of court. Mr Fung said the main derivative activity in Hong Kong involved interest rate swaps, cross-currency swaps and spot forward exchange contracts. The most common is the spot forward exchange contract, under which one party seeks to lock in a spot exchange rate by entering into a contract to buy or sell a currency at a set rate at some time in the future. Currency swaps are often used when a corporate has, for example, US dollar liabilities and receivables in a different currency. The corporate contracts to exchange one currency for another at a set rate at a future date. Currency swaps allow the corporate to hedge against adverse fluctuations in the exchange rate. Unlike interest rate swaps, currency swaps involve an exchange of principal. US investment banks had been offering derivatives to corporates, but one US investment banker said: 'They're generally plain vanilla, although this is changing.' He said transactions such as inverse floaters were gaining popularity. An inverse floater is often leveraged two to three times. It gambles that interest rates will keep on falling and offers investors higher yields as rates fall. A reverse floater is the opposite of an inverse floater. Because of the effect of leveraging, however, a movement in the wrong direction often leads to disproportionate losses. With interest rate swaps, borrowers may choose to lock in an interest rate to avoid getting caught out by rising interest rates. They may opt for a fixed rate of interest to protect themselves in a rising interest rate environment. Last year, the Hong Kong interbank offered rate was close to four per cent, but is now about two percentage points higher. Parties who entered into an interest rate swap to lock in last year's lower rates would, theoretically, have been spared paying higher rates that would have hit them had they opted for floating.