This paper looks at the impact that unanticipated changes in the exchange rate, specifically the currency crises that took place in Latin America between 1998 and 2004, had on the value of Spanish companies in this emerging region. It also studies the strategies, decisions, measures and initiatives that these firms made to improve the effectiveness of their hedging activities. Building upon previous studies in industrialized countries, the study applies a broad perspective as it takes a cross-functional approach by including finance, strategic planning, marketing, and operations management in the analysis. The data was collected from interviews containing structured and open-ended questions with senior managers and directors of the largest Spanish investors in Latin America and then analyzed using quantitative and qualitative methods. The quantitative study involves a time series regression to calculate a foreign exchange exposure coefficient. The qualitative analysis uses a systematic approach to develop categories from the data gathered in the interviews. The research results suggest that foreign companies exposed to exchange risks in emerging markets gain resilience when decentralizing the decision-making and implementation of hedging initiatives to subsidiaries to: (1) Elaborate scenarios, (2) assess possible impacts of exchange rate variations, (3) design pre-emptive measures, and (4) set alternative strategies to mitigate potential impacts. This multi-functional and systemic approach to manage risks seems to offer companies higher flexibility and new knowledge that can be shared among subsidiaries working in similar economic and political environments.

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Journal of US-China Public Administration
Incae Business School

Cardoza, G, & Fornes, G. (2009). A Study of Spanish Companies’ Hedging Strategies in Latin America. Journal of US-China Public Administration, 6(1), 50–61.