Exchange rate exposure and the use of foreign currency derivatives in the Australian resources sector

In this paper, we provide a re-examination of the exchange rate exposure and foreign currency derivative use by Australian resources firms in the 2006–2009 period which is characterized by increased volatility caused by the global financial crisis. In particular, we consider the interaction of a resources firm's exchange rate risk exposures, foreign currency derivative use and the global financial crisis simultaneously. Conforming to expectations, our results indicate that more companies are significantly exposed to exchange rate risk since the onset of the financial crisis. However, there is a lack of evidence that the use of foreign currency derivative is more effective in alleviating exchange rate exposures during the crisis as opposed to the pre-crisis period.

► We study the impact of the GFC on the use of foreign currency derivatives.
► The GFC is related to increases in exposure levels and the number of exposed firms.
► Firms use foreign currency derivatives more extensively during the GFC.
► FCD is associated with lower exchange rate exposures, especially for smaller firms.
► Larger firms are better positioned to employ multiple hedging techniques.