Considerations on the Use of Derivative Financial Instruments Within a Foreign Exchange Hedging Strategy for Companies Under the Free Trade Zone Regime

Abstract

The following document consisted of developing a research, study, and financial analysis of the alternatives of exchange hedges available to companies in the free zone regime in the Costa Rican market. For this, the exchange hedging instruments offered by the institutions authorized by the Sugef were identified and details of the requirements and the way of operating in each institution were obtained. A case was proposed to exemplify the most common situation in the Costa Rican market. According to the results, the best financial conditions for this example are offered by the synthetic forward contract, however, the forward contract is considered as the least risky option to perform. For this reason, companies with foreign exchange exposure are recommended to carry out a hedging strategy and to contract a derivative instrument according to their risk profile, to ensure the responsible financial management of the company and timely control financial risks.