Last month, Chatham Financial released a benchmarking report on the state of financial risk management among U.S.-based businesses. Chatham studied the Securities and Exchange Commission (SEC) filings of more than 1,000 public companies with annual revenues between $500 million and $20 billion, excluding financial services and insurance companies, to determine how many of these organizations incur currency, commodity, and interest rate risks, and how they mitigate those risks.

Many of these organizations have experienced a significant increase in financial risks over the past decade, as they've extended their operations abroad and as volatility has increased in global financial markets. Nevertheless, Chatham found that many companies with foreign exchange, interest rate, and/or commodity risks on their financial statements are not using derivatives to hedge these risks (see Figure 1).

About half of organizations that have currency risk are hedging their exposure; the Chatham report notes that this is “a surprisingly low percentage given the extreme volatility around the currencies to which the companies have exposure.” The majority of companies that are hedging foreign exchange (FX) risk are using both balance sheet and cash flow hedges.­