During the period of the global
financial crisis only on Forex one can hedge
funds against business risks induced by
considerable fluctuations of the exchange rates.
InstaForex is one of few companies offering its
clients consultations on hedging and realization
of the programme aimed at hedging of an
underlying asset.
Why is Forex the only way to insure
your capital at the time of the macroeconomic
crisis?
Companies which deal with foreign trade
operations all over the world (exporters and
importers) are active Forex participants.
Exporters have constant interest in selling
foreign currencies, while importers are
interested in purchasing them. Foreing exchange
rates are ever changing, especially during the
macroeconomic crisis. As a result, the real
value of a commodity sold or bought can
considerably change, and a contract which seemed
to be profitable can turn out to be losing.
There are analytical departments at big
companies which deal with export and import
operations. At the moment high volatility on the
financial market is observed, and this is the
reason why it is impossible to insure the
capital, particularly for a long period of time.
That is why investment in Forex is the only way
of hedging your funds.
What possibilities does insurance of
Forex investment losses open? Your
funds, as well as future profit or expenses in
foreign currencies, are exposed to the foreign
exchange risk. Many companies tend to make
calculations in one currency (for instance, the
US dollar); as a result of revaluation of profit
and expense item in foreign currencies, there
can be profits or expenses when the rate of a
given currency changes. Hedging against the
foreign exchange risk is protecting funds from
changes in the currency rates, which consists in
fixation of the actual currency price by means
of deal conclusion. Hedging makes the risk of
currency fluctuations disappear, enabling
companies to plan future business and foresee
the financial result, which is not distorted by
currency fluctuations. It also gives the
opportunity to set prices, calculate the profit,
salaries, etc.
Hedging against the foreign exchange risk
with the help of deals without a flow of funds
(using the leverage) provides the additional
opportunities:
- It does not imply retrieving
considerable funds from the capital
turnover.
- It allows selling a currency which will
be received in future.
There are two main types of hedging - Buyer
hedging and Seller hedging. Buyer hedging is
used for decreasing the risk related to a
possible increase in the commodity's price.
Seller hedging is used in the opposite situation
- for limitation of the risk connected with a
possible decrease in the commodity's price. The
general hedging principle in case of foreign
trade operations lies in opening a position on a
certain currency in the opposite direction to a
future position for funds converting. An
importer needs to buy a foreign currency, that
is why he opens a long position on the trading
account in advance, and when a moment of the
currency purchase comes, he closes the position.An exporter needs to sell a foreign currency,
that is why he opens a short position on the
trading account in advance, and when a moment of
the currency purchase comes, he closes this
position. To start hedging, it is necessary to
open a trading account with InstaForex Group
which provides services for trading on Forex.
Measures a company importing goods from
Europe undertakes to hedge against risks are as
follows: a company-importer is waiting for the
supply of a consignment from Europe for a
certain sum in euros within the month. The
company has dollars on its account, and it has
to convert dollars into euros at its bank. In
this connection, the company decides to hedge
against the risk of a euro rate hike, and
therefore opens deals on the trading account in
the opposite direction. Using the 1:1000
leverage, it is necessary to invest about 1% of
the sum which needs to be protected. In case the
euro goes up in price, the company suffers
losses because of the high market volatility
with the euro conversion at bank, but the profit
on the trading account compensates this loss.
Profit and loss total sum will always be equal
to zero. This is the way the company relieves
itself of bother about a possible euro rate hike
and saves funds for other operations.
Hedging expenses are trivial in comparison
with the sum of hedged contracts. The aim of
hedging is not generation of profit, but
decrease of potential losses. That is why
hedging efficiency during crises and subsequent
two - three years may be assessed only taking
into account the main activity of the trading
company. A well-built hedging program reduces
not only risks but also expenditures due to a
release of the company’s resources. |
