Correspondence: Jorge A. Chan-Lau, International Monetary Fund, 700 19th St NW, Washington, DC 20431, USA. E-mail: jchanlau@imf.org

¹Dr Jorge A. Chan-Lau is a senior economist in the Monetary and Capital Markets Department of the International Monetary Fund. He holds MPhil and PhD degrees in Economics and Finance from the Graduate School of Business, Columbia University, and a BS in Civil Engineering from Pontificia Universidad Católica del Perú. He currently works on credit risk, financial markets, and financial stability, and has published work on contagion, financial crisis, credit derivatives, corporate restructuring, and institutional investors' asset allocation.

Received 10 October 2006; Revised 10 October 2006.

Abstract

Policy makers have expressed interest in fostering the development of local foreign exchange derivatives markets with a view to reducing risks arising from currency mismatches between assets and liabilities in the corporate sector. This paper assesses foreign exchange exposure in the corporate sector in Chile, analyses the current state of the foreign exchange derivatives market in Chile, and argues that liquid and developed foreign exchange derivatives markets can help promote financial stability.