Floating foreign exchange rates have gained increased support as a preferred system for reducing the vulnerability of emerging markets to external shocks. The volatility associated with floating exchange rates, however, exposes economic agents to the risk of changes in the valuation of the financial assets and liabilities in their balance sheet, as well as in their stream of current and expected cash flows. Since derivatives provide agents with tools to insure against risk, the development of the foreign exchange derivatives markets would appear to be a key complement to a successful floating exchange rate system.
Attribution-NonCommercial-NoDerivs 3.0 Chile
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