Staff Reports
Real Consequences of Foreign Exchange Derivatives Hedging
Previous title: “The Real Consequences of Macroprudential FX Regulations”
Number 989
October 2021 Revised September 2022

JEL classification: D14, E44, G15, G28, G32

Authors: Hyeyoon Jung

I exploit a quasi-natural experiment in South Korea to examine the real effects of foreign exchange derivatives (FXD) hedging. By using cross-bank variation in the tightness of an FX regulation designed to discourage risk-taking by financial intermediaries, I show that the regulation caused a decline in the supply of FXD, resulting in a substantial reduction in exports, especially for small firms that relied heavily on FXD hedging. I provide a mechanism involving firms’ costly external financing, as well as their costly switching of banking relationships and banks’ costly equity financing, that explains the empirical findings.

Available only in PDF
Hyeyoon Jung
The research in this paper received funding from New York University Center for Global Economy and Business. The funding source did not have any input into the research process or the results.

The author (Hyeyoon Jung) declares that she has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at
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