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Working Paper
Risk Management and Derivatives Losses
Even though financial risk management has the ability to generate value, the use of financial derivatives among nonfinancial corporations remains limited. We identify a channel that contributes to this limited use: the decoupling of derivatives losses and operational gains. Specifically, firms ex post consider their operational profits separately from their derivatives profits. We explore this phenomenon among firms in Mexico. We use the universe of US dollar Mexican peso currency derivatives transactions in Mexico along with customs data to construct a unique data set on operational exchange ...