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How to Initiate a Risk-Hedging Program

New study shows increasing proportion of companies are hedging FX and interest-rate risks—but where should a novice company start?

By Treasury & Risk | February 27, 2020 at 10:30 AM

The “2020 State of Financial Risk Management” study from Chatham Financial found that fewer than half of public companies are using derivatives hedging to mitigate their financial risks. The research, which Chatham conducts every three years, entailed examination of the 2018 10-Ks of more than 1,400 U.S.-based public companies.

This deep-dive review of corporate financial statements revealed that 91 percent of companies face material interest-rate risks, 73 percent face foreign exchange (FX) risks, and 47 percent face commodity risks. However, among those with interest-rate exposures, only 43 percent actively manage the risks through a hedging program. More than half of companies (59 percent) with FX risks hedge them, but only 37 percent of organizations with commodity risks mitigate those risks using derivatives hedging. (See Figure 1, below.)

To find out why the majority of companies aren’t hedging their financial risks, Treasury & Risk spoke with Amol Dhargalkar, a managing director for Chatham Financial who leads the firm’s global corporate sector, assisting corporations with managing interest rate, FX, and commodity risks.

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