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The use of foreign exchange derivatives to protect against exposure to exchange rate risk

Author

Listed:
  • André Fernandes Lima

    (Universidade Presbiteriana Mackenzie (UPM))

  • Alexandre Aragão Pinto dos Santos

    (Universidade Presbiteriana Mackenzie (UPM))

Abstract

The advent of the international crisis in 2008 showed not only the fragility of the global financial system and its lack of regulation, but also how the indiscrimi‑ nate use of derivatives may increase the financial risk of large companies, both national and multinational ones. These instruments were considered one of the villains of the current crisis. The present work pretends to show how its use can preserve the financial health of companies. The focus takes place in foreign ex‑change derivatives because they are widely used by companies operating interna‑ tionally. We analyze the main instruments, their uses, benefits and how they might affect the value of the company that use in an appropriate way, i.e., for protection – in order to keep healthy the entire flow of operational and financial company –, as well as examples of companies that used them for speculative pur‑ poses, without reaching, however, the expected results.

Suggested Citation

  • André Fernandes Lima & Alexandre Aragão Pinto dos Santos, 2012. "The use of foreign exchange derivatives to protect against exposure to exchange rate risk," Revista de Economia Mackenzie (REM), Mackenzie Presbyterian University, Social and Applied Sciences Center, vol. 10(1), pages 63-87, Edição .
    • Handle: RePEc:aft:journl:v:10:1:2012:specialissue:p:63-87
    DOI: -
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