This paper examines whether firms use foreign currency derivatives for hedging or speculative purposes. Using a sample of S&P 500 nonfinancial firms for 1993, the authors find that firms use currency derivatives to reduce their exchange-rate exposure, as evidenced by a significant negative relationship between the use of derivatives and exchange-rate exposure. The decision to use derivatives is influenced by exposure factors (foreign sales and trade) and variables related to optimal hedging theories (size and R&D expenditures). However, the level of derivatives used depends only on these exposure factors. The results are robust across different samples, estimation techniques, and exchange-rate indices. The paper also explores the determinants of the extent of hedging, finding that exposure factors are the sole determinants of the degree of hedging. Additionally, the authors examine the use of foreign debt as a hedging instrument, finding that firms with higher exposure to foreign sales and trade are more likely to issue foreign debt. Overall, the findings support the hypothesis that firms use currency derivatives and foreign debt primarily for hedging purposes rather than speculation.This paper examines whether firms use foreign currency derivatives for hedging or speculative purposes. Using a sample of S&P 500 nonfinancial firms for 1993, the authors find that firms use currency derivatives to reduce their exchange-rate exposure, as evidenced by a significant negative relationship between the use of derivatives and exchange-rate exposure. The decision to use derivatives is influenced by exposure factors (foreign sales and trade) and variables related to optimal hedging theories (size and R&D expenditures). However, the level of derivatives used depends only on these exposure factors. The results are robust across different samples, estimation techniques, and exchange-rate indices. The paper also explores the determinants of the extent of hedging, finding that exposure factors are the sole determinants of the degree of hedging. Additionally, the authors examine the use of foreign debt as a hedging instrument, finding that firms with higher exposure to foreign sales and trade are more likely to issue foreign debt. Overall, the findings support the hypothesis that firms use currency derivatives and foreign debt primarily for hedging purposes rather than speculation.