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Granular Corporate Hedging Under Dominant Currency

Author

Listed:
  • Varela, Liliana
  • Alfaro, Laura
  • Calani, Mauricio

Abstract

This paper shows that, in a world dominated by vehicle currencies, firms engaging in international operations retain currency risk and hedge it real and financially. We employ a unique dataset covering the universe of trade credit, international trade, foreign currency debt, and FX derivatives contracts with firms' census data in Chile (2005-2018). We document that operational hedging is quantitatively limited, as different maturity, frequency, and amount of FX operations make it difficult to net these exposures. The granular firms complement real hedging using FX financial instruments, which improve their cash flow management and promote their trade and growth.

Suggested Citation

  • Varela, Liliana & Alfaro, Laura & Calani, Mauricio, 2021. "Granular Corporate Hedging Under Dominant Currency," CEPR Discussion Papers 16232, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16232
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    2. Niepmann, Friederike & Schmidt-Eisenlohr, Tim, 2022. "Foreign currency loans and credit risk: Evidence from U.S. banks," Journal of International Economics, Elsevier, vol. 135(C).
    3. Leão, Sergio & Schiozer, Rafael & Oliveira, Raquel F. & Araujo, Gustavo, 2025. "Lending relationships and access to currency hedging: Evidence from Brazil," Journal of Financial Intermediation, Elsevier, vol. 63(C).
    4. Hyeyoon Jung, 2021. "Real Consequences of Shocks to Intermediaries Supplying Corporate Hedging Instruments," Staff Reports 989, Federal Reserve Bank of New York.
    5. Lorena Keller, 2024. "Arbitraging Covered Interest Rate Parity Deviations and Bank Lending," American Economic Review, American Economic Association, vol. 114(9), pages 2633-2667, September.
    6. Kubitza, Christian & Sigaux, Jean-David & Vandeweyer, Quentin, 2025. "The implications of CIP deviations for international capital flows," Working Paper Series 3017, European Central Bank.
    7. Nuwat Nookhwun & Jettawat Pattararangrong & Phurichai Rungcharoenkitkul, 2025. "Exchange Rate Effects on Firm Performance: A NICER Approach," BIS Working Papers 1266, Bank for International Settlements.
    8. Nathan, Daniel & Ben Zeev, Nadav, 2022. "Shorting the Dollar When Global Stock Markets Roar: The Equity Hedging Channel of Exchange Rate Determination," MPRA Paper 112909, University Library of Munich, Germany.
    9. Jan Bena & Andrew Ellul & Marco Pagano & Valentina Rutigliano, 2025. "Entrepreneurs’ Diversification and Labor Income Risk," CSEF Working Papers 754, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 07 Oct 2025.
    10. Sérgio Leão & Rafael Schiozer & Raquel F. Oliveira & Gustavo Araujo, 2022. "Lending Relationships and Currency Hedging," Working Papers Series 565, Central Bank of Brazil, Research Department.
    11. Martha Elena Delgado & Juan Herreño & Marc Hofstetter & Mathieu Pedemonte, 2024. "The Causal Effects of Expected Depreciations," Working Papers 24-07, Federal Reserve Bank of Cleveland.
    12. Forbes, Kristin & Friedrich, Christian & Reinhardt, Dennis, 2023. "Stress relief? Funding structures and resilience to the covid shock," Journal of Monetary Economics, Elsevier, vol. 137(C), pages 47-81.
    13. Miguel Acosta-Henao & María Alejandra Amado & Montserrat Martí & David Pérez-Reyna, 2025. "Heterogeneous UIPDs across Firms: Spillovers from U.S. Monetary Policy Shocks," Working Papers 2530, Banco de España.
    14. Hardy, Bryan, 2023. "Foreign currency borrowing, balance sheet shocks, and real outcomes," Journal of International Money and Finance, Elsevier, vol. 139(C).

    More about this item

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F2 - International Economics - - International Factor Movements and International Business
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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