Abstract
Exchange rates are important macro variables for developing economies. Fluctuations in exchange rates, especially upward trending movements, creates a foreign exchange risk for both debtors and firms that use imported inputs in their operations. In consideration of this, investors take on various actions to avoid possible foreign exchange risks. Thus, this study investigates whether investors borrowing foreign exchange loans from commercial banks use such credits as a means of hedging against foreign exchange risk. In this respect, ARDL cointegration and Toda-Yamamoto (1995) causality analyses are employed to study the relationship between ratio of foreign exchange loans to the total loans granted by commercial banks and real effective exchange rate in turkey for the period 2003:1-2018:6. The results of the analysis indicate that foreign exchange loans can be taken out as a means of hedging against foreign exchange risk.
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