Foreign Exchange Hedge - Do Companies Hedge?

Do Companies Hedge?

Since 2004, the Bank of Canada has carried out a qualitative annual survey to assess the degree of activity in Canadian foreign exchange (FX) hedging. The survey participants comprise banks that are active in Canadian FX markets, including the eleven members of the Canadian Foreign Exchange Committee (CFEC). The 2011 survey was divided into two parts, each separately covering the FX hedging activity of the banks’ corporate and institutional accounts that have CAD hedging requirements. The main findings in the 2011 survey were:
(1) Exporter FX hedging activity continues to be the largest contributor to corporate customer volume and is driven primarily by the actual level of the currency.
(2) Approximately half of the currency exposures are hedged. The majority of institutional accounts have a formal FX hedging policy, while fewer than half of the corporate accounts have any formal policy.
(3) The majority of institutional and corporate hedges are conducted for terms of less than six months.
(4) Given the strength of the CAD, Canadian importers increased both their hedging volumes and the duration of the FX hedges. On the other hand, Canadian exporters delayed hedging their exposures as the CAD appreciated. If they did hedge, only shorter durations were targeted, since exporters expected some future weakness in the CAD.
(5) Due to the strong CAD, Canadian domestic institutional investors increased their foreign investments, but there has been no change in their overall hedging ratio for their foreign assets.