Foreign Exchange Risk Hedging in Internationally Active Firms: Global Evidence and Implications for Colombia

Abstract

This article examines the literature on firm-level foreign exchange risk hedging in internationally active firms, with particular attention to emerging markets, Latin America, and Colombia. The review analyzes the main financial and non-financial strategies used to manage exchange-rate exposure, including derivatives-based hedging, natural hedging, operational hedging, currency invoicing, and contractual adjustment mechanisms. It also synthesizes the principal determinants of hedging adoption, the outcomes associated with hedging use, and the barriers that constrain access to hedging tools in less developed financial environments. The findings suggest that the strongest evidence is concentrated in large and financially sophisticated firms, while smaller firms and emerging-market contexts remain less documented and more constrained by market depth, institutional frictions, and regulatory conditions. In Latin America, Chile and Colombia provide especially relevant evidence for understanding the relationship between foreign exchange exposure, derivatives usage, firm value, and policy context. For Colombia, the literature points to concentrated use of hedging instruments, positive valuation effects in some firms, and significant limitations related to market structure and financial regulation. The article concludes by identifying transferable insights for Colombia and highlighting areas that require further research, particularly regarding SMEs, hybrid hedging strategies, and trade-related real outcomes.