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Hedging Foreign Exchange Risk in Chile

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  • Jorge A. Chan-Lau

Abstract

Policy makers have expressed interest in fostering the development of local foreign exchange derivatives markets with a view to reducing risks arising from currency mismatches between assets and liabilities in the corporate sector. This paper assesses foreign exchange exposure in the corporate sector in Chile, analyzes the current state of the foreign exchange derivatives market in Chile, and argues that liquid and developed foreign exchange derivatives markets can help promote financial stability.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/37.

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Length: 23
Date of creation: 01 Feb 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/37

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Keywords: Markets; foreign exchange; hedging; exchange rate; hedge; derivatives market; stock market; exchange risk; foreign exchange risk; currency derivatives; foreign exchange derivatives; forward market; exchange rates; forward contract; exchange rate movements; financial sector; financial institutions; derivatives exchange rate changes; financial currency hedging; exchange rate exposure; derivatives trading; exchange rate risk; currency risk; financial stability; stock returns; financial system; money market; international capital cash flows; exchange rate volatility; international capital; derivatives exchanges; domestic interest rates; derivative; cash flow; currency exchange; derivatives transaction; hedges; foreign futures; international financial interest rate futures; derivatives transactions; financial assets; foreign exchange rate; hedging instruments; bonds; money market account; currency risks; derivatives instruments; financial contracts; exchange reserves; unhedged position; present value; hedge ratios; foreign exchange market; exchange members; foreign exchange reserves; stock market movements; currency hedge; foreign exchange contracts; financial corporations; futures contracts; financial instruments; bondholders;

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References

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  1. Ricardo J Caballero & Kevin Cowan & Jonathan Kearns, 2004. "Fear of Sudden Stops: Lessons from Australia and Chile," RBA Research Discussion Papers, Reserve Bank of Australia rdp2004-03, Reserve Bank of Australia.
  2. Moguillansky, Graciela, 2002. "Non-Financial Corporate Risk Management and Exchange Rate Volatility in Latin America," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  3. Hoa Nguyen & Robert Faff, 2002. "On The Determinants of Derivative Usage by Australian Companies," Australian Journal of Management, Australian School of Business, Australian School of Business, vol. 27(1), pages 1-24, June.
  4. Niclas Hagelin, 2003. "Why firms hedge with currency derivatives: an examination of transaction and translation exposure," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 13(1), pages 55-69.
  5. Detemple, Jerome & Jorion, Philippe, 1990. "Option listing and stock returns : An empirical analysis," Journal of Banking & Finance, Elsevier, Elsevier, vol. 14(4), pages 781-801, October.
  6. Conrad, Jennifer, 1989. " The Price Effect of Option Introduction," Journal of Finance, American Finance Association, American Finance Association, vol. 44(2), pages 487-98, June.
  7. World Bank & International Monetary Fund, 2004. "Financial Sector Assessment : Chile," World Bank Other Operational Studies 15819, The World Bank.
  8. Dominguez, Kathryn M.E. & Tesar, Linda L., 2006. "Exchange rate exposure," Journal of International Economics, Elsevier, Elsevier, vol. 68(1), pages 188-218, January.
  9. Viviana Fernández, 2002. "The Derivatives Markets in Latin America with an Emphasis on Chile," Documentos de Trabajo, Centro de Economía Aplicada, Universidad de Chile 128, Centro de Economía Aplicada, Universidad de Chile.
  10. Garman, Mark B. & Kohlhagen, Steven W., 1983. "Foreign currency option values," Journal of International Money and Finance, Elsevier, Elsevier, vol. 2(3), pages 231-237, December.
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Citations

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Cited by:
  1. Erwin Hansen S. & Stuart Hyde, 2013. "Determinants of corporate exchange rate exposure in Chilean firms," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, Central Bank of Chile, vol. 16(3), pages 70-88, December.
  2. Lourdes Treviño, 2005. "Development and volume growth of organized derivatives trade in emerging markets," Ensayos Revista de Economia, Universidad Autonoma de Nuevo Leon, Facultad de Economia, vol. 0(2), pages 31-82, November.
  3. Shotar, M.M. & El-Mefleh, M.A., 2009. "Economic Exposure To Exchange Rates In Jordan Companies: A Monthly Econometric Model Of The Rate Of Return Of Firms, 2004-2007," Applied Econometrics and International Development, Euro-American Association of Economic Development, Euro-American Association of Economic Development, vol. 9(1).
  4. Jose Berrospide, 2008. "Exchange rates, optimal debt composition, and hedging in small open economies," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2008-18, Board of Governors of the Federal Reserve System (U.S.).
  5. Sweta Saxena & Agustin Villar, 2008. "Hedging instruments in emerging market economies," BIS Papers chapters, Bank for International Settlements, in: Bank for International Settlements (ed.), Financial globalisation and emerging market capital flows, volume 44, pages 71-87 Bank for International Settlements.

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