arrow checkmark code cross email facebook magnifier pdf phone plus twitter user youtube

Seminarios académicos y conferencias

Mauricio Calani, Banco Central de Chile

"Currency Hedging in Emerging Markets: Managing Cash Flow Exposure"

Coautoreado con Laura Alfaro y Liliana Varela.

7 Mayo 2020 - 17:00 hrs.

Webinar con inscripción

Abstract: Foreign currency derivative markets are among the largest markets in the world, yet their role is relatively understudied, in particular in emerging markets. In this paper, we assess firms’ hedging behavior by employing a unique transactional-level dataset covering the universe of FX derivative transactions in Chile since 2002. To assess firms’ hedging choices in accordance to their currency exposure, we merge all transaction data on forwards, swaps, futures and options with employment, sales, exports, imports and credit data by currency denomination at the firm level. This unique dataset allows to track closely firms’ exposure to currency risk and their hedging strategy in all economic activities and over a long panel. We uncover three main facts regarding the use of FX derivates. First, firms that employ FX derivatives are larger (in employment, debt, export and imports) and use FX derivatives to hedge large amounts. Second, we show that natural hedging is limited. Third, we show maturity differences to affect the cost of hedging. We show differences in the timing of cash flows and the thickness of the market play important roles in firm’s hedging choices. Finally, we exploit a change to Pension Funds’ regulation to foreign currency exposure to further explore how liquidity shocks to the FX derivatives market permeate to firms hedging choices.