The decline in exchange rate volatility is linked to less interest in hedging risks among investors. As a result, the connection between foreign investments and exchange rate volatility has weakened over time. Investments among Euro area countries have dropped since 2007, even after the financial crisis. This decrease in investments is related to the reduced importance of hedging against exchange rate risks within the Euro area. When accounting for the impact of exchange rate volatility, the decrease in bilateral investments in the Euro area disappears.