Ha Trang Le

This paper examines whether country-level uncertainty, measured by the country-level World Uncertainty Index, is associated with changes in foreign exchange turnover composition, with particular attention to hedging-related instruments. Using country-level data from the BIS Triennial Survey over 1995–2025, the study analyzes FX turnover composition across 35 countries. The empirical approach uses fixed-effects models with country and survey-year effects, with standard errors clustered by country. The results show that uncertainty is not consistently associated with a lower share of spot transactions in the full sample. However, it is positively and significantly associated with the share of hedging-related instruments. Decomposition results indicate that this relationship is concentrated mainly in outright forwards, while currency swaps and FX options are not statistically significant. The association is stronger in emerging market economies, while the results provide weaker, suggestive evidence of a stronger association at lower levels of capital account openness. Overall, the findings suggest that uncertainty is associated primarily with a greater relative importance of forward-based instruments in FX turnover composition, rather than with a broad substitution away from spot trading.