Last month, Chatham Financial released a benchmarkingreport on the state of financial risk management amongU.S.-based businesses. Chatham studied the Securities and ExchangeCommission (SEC) filings of more than 1,000 public companies withannual revenues between $500 million and $20 billion, excludingfinancial services and insurance companies, to determine how manyof these organizations incur currency, commodity, and interest raterisks, and how they mitigate those risks.110813_Chatham_Figure 1-v2

Many of these organizations have experienced a significantincrease in financial risks over the past decade, as they'veextended their operations abroad and as volatility has increased inglobal financial markets. Nevertheless, Chatham found that manycompanies with foreign exchange, interest rate, and/or commodityrisks on their financial statements are not using derivatives tohedge these risks (see Figure 1).

About half of organizations that have currency risk are hedgingtheir exposure; the Chatham report notes that this is “asurprisingly low percentage given the extreme volatility around thecurrencies to which the companies have exposure.” The majority ofcompanies that are hedging foreign exchange (FX) risk are using both balance sheetand cash flow hedges.­

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