Why Do Latin American Firms Manage Currency Risks?

Schiozer, Rafael F.; Saito, Richard

doi:10.2139/ssrn.884210

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Why Do Latin American Firms Manage Currency Risks?

Emerging Markets Finance and Trade, Vol. 45, No. 1, 2009

36 Pages Posted: 19 Sep 2006 Last revised: 7 Feb 2014

See all articles by Rafael F. Schiozer

Richard Saito

Getulio Vargas Foundation (FGV) - Accounting, Finance & Control

Date Written: December 31, 2008

Abstract

This paper investigates the determinants of currency risk management in non-financial firms in Argentina, Brazil, Chile and Mexico. We study not only the decision of using derivatives, but also the magnitude of derivatives holdings and the importance of operational hedge in firms' risk-management strategies. We find that currency exposure is the most managed with derivatives and that firms use derivatives mainly to hedge foreign debt. We also find that economies of scale, financial distress costs, informational asymmetry and growth opportunities are important for risk-management decisions, and that firms do not hedge because of potential tax benefits.

Keywords: risk management, derivatives, foreign exchange, Latin America

JEL Classification: F31, G15, G31, G32

Suggested Citation: Suggested Citation

Schiozer, Rafael F. and Saito, Richard, Why Do Latin American Firms Manage Currency Risks? (December 31, 2008). Emerging Markets Finance and Trade, Vol. 45, No. 1, 2009, Available at SSRN: https://ssrn.com/abstract=884210 or http://dx.doi.org/10.2139/ssrn.884210