Determinants of corporate exchange rate exposure in Chilean firms

Abstract

This paper investigates the impact of exchange rate fluctuations on the value of non-financial firms in Chile. Using a detailed dataset on firms' foreign activities and use of FX derivatives, the potential determinants of the identified exposure are examined. Foreign exchange exposure depends on the levels of foreign currency debt and foreign currency assets. Exports, depending on the specification used, also appear as a determining factor. Neither imports nor the use of FX derivatives explain exposure. Chilean firms attempt hedges through matching foreign assets and income with foreign debt. Also the level of firms' liquidity, measured through cash flows, reduces exchange rate exposure.