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Demand for Foreign Exchange Derivatives in Brazil: Hedge or Speculation


  • Fernando N. de Oliveira
  • Walter Novaesk


This paper examines empirically the demand of foreign exchange derivatives by Brazilian corporations. We build an original database of 25,457 contracts of foreign exchange swaps between firms and financial institutions open at the end of 2002. From these contracts we identify 53 corporations that hedge in the foreign exchange derivatives market and 40 corporations that speculate. The data show that the existence of external debt and the size of the company affect positively the probability of hedging, whereas revenues from exports affect positively the probability of speculation. These results suggest that during periods of great volatility of the exchange rate – such as in 2002 – the corporations’ demand for foreign exchange derivatives is strongly related to speculative motives.

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  • Fernando N. de Oliveira & Walter Novaesk, 2007. "Demand for Foreign Exchange Derivatives in Brazil: Hedge or Speculation," Working Papers Series 152, Central Bank of Brazil, Research Department.
  • Handle: RePEc:bcb:wpaper:152

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    References listed on IDEAS

    1. Mayers, David, 1998. "Why firms issue convertible bonds: the matching of financial and real investment options," Journal of Financial Economics, Elsevier, vol. 47(1), pages 83-102, January.
    2. Mian, Shehzad L., 1996. "Evidence on Corporate Hedging Policy," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(03), pages 419-439, September.
    3. Jean Tirole, 2006. "The Theory of Corporate Finance," Post-Print hal-00173191, HAL.
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    Cited by:

    1. Rossi, José Luiz Júnior, 2011. "Hedge or Speculation? Evidence of the use of derivatives by Brazilian firms during the financial crisis," Insper Working Papers wpe_243, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.

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