Currency Hedging: Managing Cash-Flow Exposure

7 December 2022
Publication Type: Workshop Presentation

With the prevalent use of foreign currency, currency mismatches occur and with the fear of floating exchange rates, there is some systemic risk. In addition, foreign exchange derivative markets are among the largest and fastest-growing financial markets in the world, not excluding emerging markets. Paradoxically, this growth has received less attention. : Instrument to manage ER volatility and associated vulnerabilities

Using census transaction-level data on all foreign currency exposure and FX derivatives and by analysing firms’ foreign currency financial risk management, this research asks the following questions:

  1. Do firms exploit natural hedging?
  2. Do firms hedge their FX currency exposure with FX derivatives?
  3. Which transactions do firms use FX derivatives for?
  4. How are FX contracts priced (across/within firms)?
  5. Does FX hedging add value to the firm?
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