Staff Reports
Real Consequences of Shocks to Intermediaries Supplying Corporate Hedging Instruments
Previous titles: “The Real Consequences of Macroprudential FX Regulations,” “Real Consequences of Foreign Exchange Derivatives Hedging”
Number 989
October 2021 Revised March 2023

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

Authors: Hyeyoon Jung

I show that shocks to financial intermediaries that supply hedging instruments to corporations have real effects. I exploit a quasi-natural experiment in South Korea in 2010, where regulations required banks to hold enough capital for taking positions in foreign exchange derivatives (FXD). Using the variation in exposure to this regulation across banks, I find that the regulation caused a reduction in the supply of FXD, leading to a significant decline in exports for firms that held derivatives contracts with more exposed banks. These results indicate the crucial role of intermediaries in allocating risks through the provision of derivatives and establish a causal relationship between financial hedging and real economic outcomes.

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Author Disclosure Statement(s)
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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