Demand for Foreign Exchange Derivatives in Brazil: Hedge or Speculation

Fernando Oliveira and Walter Novaesk

No 152, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: 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.

New Economics Papers: this item is included in nep-ifn
Date: 2007-12
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Persistent link: http://EconPapers.repec.org/RePEc:bcb:wpaper:152

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