The Impact of the Use of Derivatives and Operational Hedging on Foreign Currency Risk Exposure

2007 ◽  
Author(s):  
Mohammad Al Shboul
Keyword(s):  
Foreign Currency ◽  
Risk Exposure ◽  
Currency Risk ◽  
Operational Hedging ◽  
The Impact

scholarly journals CURRENCY RISK EXPOSURE AND ITS DETERMINANTS: THEORETICAL AND EMPIRICAL RESEARCH

2019 ◽  
Vol 17 (30) ◽  
Author(s):  
Nermina Pobrić
Keyword(s):  
Empirical Research ◽  
Risk Exposure ◽  
Currency Risk ◽  
The Impact

The study investigates the currency risk exposure ofcompanies. The author presents relevant theoreticalknowledge and the results of empirical research of thecurrency risk exposure of companies and its determinants.Theoretical viewpoints on the impact of companycharacteristics and ambient factors on the currency riskexposure of companies are consistent. In empirical research,theoretical attitudes about the impact of ambientfactors on the currency risk exposure of companies havebeen confirmed, whereas theoretical attitudes on theimpact of company characteristics have not been confirmedor not confirmed in a sufficient number of empiricalstudies. Based on the obtained results of empiricalresearch, it is not possible to conclude with certaintywhich characteristics of the company affect the currencyrisk exposure of companies.

Foreign currency exposure within country exchange traded funds

2016 ◽  
Vol 33 (2) ◽  
pp. 222-243 ◽  
Author(s):  
Owen Williams
Keyword(s):  
Exchange Rate ◽  
Foreign Currency ◽  
Tracking Error ◽  
Exchange Traded Funds ◽  
Currency Risk ◽  
Content Type ◽  
Currency Exposure ◽  
The Exchange Rate ◽  
Sharpe Ratios ◽  
The Impact

Purpose The purpose of this paper is to consider the implicit effect of the underlying foreign currency exposure on the performance characteristics of country exchange traded funds. Design/methodology/approach To arrive at an overall estimation of the exchange-traded fund (ETF)’s tracking error, the mean of the three measures of tracking error was calculated for both the hedged (r_LC) and unhedged (r_NAV) return series. Since tracking error does not capture all the risk inherent in a country index fund, the study extends the analysis using the Sortino and Modified Sharpe ratios. Findings The decision to hedge currency risk should not be taken on the sole basis of historical volatilities. The investor must also factor in transactions costs, the possible roll of futures contracts and prevailing interest rate differentials. If the rate on the foreign currency is greater than the dollar (euro) rate, the investor will pay for the hedge. If the rate on the foreign currency is less than the dollar (euro) rate, the investor will gain on the trade. Given that hedging entails additional costs, in cases where the neutralization of currency volatility only reduces risk modestly, it would be advisable to leave the exchange rate risk unhedged. We propose two metrics for ETF investors deciding whether to hedge a country ETF’s underlying currency risk. Originality/value The results highlight a key finding: while the majority of country funds accurately track the performance of the underlying foreign index when measured in the local currency, returns in the fund currency can be much more volatile. In breaking down the sources of country fund volatility, the paper demonstrates the impact of the underlying currency movements on overall fund risk. In cases where the currency impact has a significant impact on fund tracking errors, an index-oriented investor benefits from neutralizing the exchange rate effect. Additionally, as the Sortino and Modified Sharpe measures suggest that the underlying currency exposure offers in most cases a better risk-adjusted return for country exchange-traded funds (ETFs) in the listing currency, we also calculate the risk minimizing foreign currency exposure for each fund and propose a decision rule based on the net currency variance to decide whether to hedge the ETF’s currency risk. The optimal hedge ratio indicates that US-based investors should only partially hedge the underlying currency risk while European-based investors are better off fully hedging currency risk.

Asia-Pacific Hotels International: Managing Short Term Cash in the Derivatives Market

2010 ◽  
Vol 14 (02) ◽  
pp. 233-244
Author(s):  
Pat Obi ◽  
Jeong Gil Choi
Keyword(s):  
Foreign Currency ◽  
Asia Pacific ◽  
Risk Exposure ◽  
Management Problem ◽  
Currency Risk ◽  
Short Term ◽  
Futures Contract ◽  
Local Currency ◽  
Time Deposits ◽  
Eurodollar Futures

This case deals with a cash management problem for an international hotel based in Seoul, Korea. Although successful in its core hotel operations, the firm has not been as successful in managing its short term cash flow. Part of the firm's operating and materials costs are in US dollars although all of its operating incomes are in the local currency, the South Korean won. This imbalance creates a currency risk exposure in the management of the firm's working capital. To ensure that it has sufficient funds to pay its dollar-denominated costs, the firm is considering the investment in a sizeable amount of dollar-denominated time deposits. Pursuing this strategy, however, involves a two-fold global dimension: First, the firm must determine what exchange rate conditions would make it suitable to invest in dollar-denominated time deposits rather than in the local currency. Second, for any such dollar-denominated short-term investments, the firm must decide when and how to use the facilities of the Eurodollar futures market to hedge the currency risk exposure. The specific approach being considered includes a combined position in Eurodollar time deposits and Eurodollar futures contract. This case presents an opportunity to learn how firms can successfully combine short-term investments in a foreign currency-denominated time deposit with positions in the derivatives markets, the aim of which is to manage exposure to currency risk.

scholarly journals Foreign Exchange Exposure Management Practices by Zimbabwe's Tourism and Hospitality Companies: A Case for the Depreciation of Rand (2014-2016)

2016 ◽  
Vol 8 (4(J)) ◽  
pp. 123-132
Author(s):  
Wilford Mawanza
Keyword(s):  
Foreign Exchange ◽  
Management Practices ◽  
Foreign Currency ◽  
Service Providers ◽  
Exchange Rate Regime ◽  
Tourism Industry ◽  
Research Approach ◽  
Currency Risk ◽  
Tourism And Hospitality ◽  
The Impact

One of the key challenges for tourism and hospitality in the Sub-Sahara Africa (SSA) region is currency behaviours and Exchange rate regime choices. When a company engages in international business foreign currency risk management becomes a crucial part of doing business and the tourism industry of Zimbabwe was not spared on this issue. The objective of this research was to assess the foreign exchange (forex) Exposure Management Practices by Zimbabwe's tourism and hospitality companies. The study was done through a survey on 28 operators in Zimbabwe. A qualitative research approach was adopted in analysis of the data It was found out that the most commonly used ways of reducing the exposure by Zimbabwe's tourism companies were the amicable and mixed-method approaches, of receiving the currency and use it in the country of origin to import materials, matching receipts and payments in foreign currency, risk shifting though it come with low volumes and compromised repeat business. The study recommended that companies and the entire economy must consider invoicing products and services in Rands and even use the rand as a reporting currency. If for example tourism and hospitality players would price regional tourists especially from South Africa and other Rand countries, ignoring the impact of rand depreciation, it would mean that Zimbabwe's tourism and hospitality providers will be in direct competition with the former's own local service providers based on rand priced packages.

MENGELOLA RESIKO DENGAN PRODUK DERIVATIF

2008 ◽  
Author(s):  
Dandes Rifa
Keyword(s):  
Risk Management ◽  
Value At Risk ◽  
Foreign Currency ◽  
Balance Sheet ◽  
Cash Flows ◽  
Market Risks ◽  
Hedging Strategies ◽  
Operational Hedging ◽  
Potential Risks ◽  
Derivative Products

The main objective of risk management is to minimize the potential for losses (risk) arising from unexpected changes in currency rates, credit, commodities and equities. One of the risks faced by companies is market risk (value at risk). This article aims to explain that risk management can be one of them by using derivative products. Derivative transactions is very useful for business people who want to hedge (hedging) against a commodity, which always experience price changes from time to time. There are three strategies that can be used to hedge the balance sheet hedging strategy, operational hedging strategies and contractual hedging strategies. Staregi contractual hedging is a form of protection that is done by forming a contractual hedging instruments in order to provide greater flexibility to managers in managing the potential risks faced by foreign currency. Most of these contractual hedging instrument in the form of derivative products. The management can enhance shareholder value by controlling risk. -Party investors and other interested parties hope that the financial manager is able to identify and manage market risks to be faced. If the value of the firm equals the present value of future cash flows, then risk management can be justified. 

scholarly journals Rijeka as a socialist port: Insights from Jugolinija's early years, 1947-1960

2021 ◽  
Vol 33 (1) ◽  
pp. 193-208
Author(s):  
Brigitte Le Normand
Keyword(s):  
Rapid Growth ◽  
Foreign Currency ◽  
Global Market ◽  
Early Years ◽  
The Political ◽  
State Socialism ◽  
Privileged Access ◽  
Shipping Line ◽  
The World ◽  
The Impact

To understand the distinctiveness of ports under state socialism, it is necessary to shift the focus from the built environment to flows of people, goods, knowledge and capital. In so doing, this article examines the operation of Yugoslavia's main shipping line, Jugolinija, from its inception in 1947 until 1960. This enterprise was based in the port of Rijeka, with both firm and port experiencing rapid growth during this period. The impact of state socialism can be seen in the primacy of the political over the profitability of the firm, with Jugolinija used to advance Yugoslavia's foreign trade and foreign policy, its interests being subordinated to the project of building self-managed socialism. It can also be seen in the unique challenges posed by having to operate at the intersection of the global market and a highly regulated economy – a situation that also created opportunities for the firm as a whole, as well as for its employees, who had access to foreign currency, travel and knowledge of the world. Jugolinija's privileged access to the world in what was still very much a closed society also created opportunities for ‘leaks’ of personnel and goods. Finally, socialist ideology left its imprint on Jugolinija's operations and shaped the ways in which its employees understood their work and the place of the firm within the Yugoslav economy. While it is tempting to see state socialism as ‘getting in the way’ of Jugolinija's business, in actuality the firm was remarkably successful both at operating within the Yugoslav socialist state framework, and capitalizing on the opportunities provided by access to the global market. Jugolinija's employees, in turn, profited from the mobility that came with working for the firm, sometimes at the expense of the enterprise and the state.

Impact of cancer- and patient-level factors on provider risk in the Oncology Care Model.

2021 ◽  
Vol 39 (15_suppl) ◽  
pp. e18852-e18852
Author(s):  
Basit Iqbal Chaudhry ◽  
Andrew Yue ◽  
Shuchita Kaila ◽  
Kay Sadik ◽  
Lisa Tran ◽  
...  
Keyword(s):  
Domain Knowledge ◽  
Research Literature ◽  
Risk Exposure ◽  
Progression Rate ◽  
Cell Transplant ◽  
Care Model ◽  
Data Set ◽  
Patient Level ◽  
Oncology Care ◽  
The Impact

e18852 Background: Transferring financial risk from payers to providers to align incentives is central to value-based payment (VBP) reform, including Medicare’s Oncology Care Model (OCM). We simulated the impact of selected cancer- and patient-level factors on providers’ risk in OCM for multiple myeloma (MM), due to its clinical complexity. We hypothesize that risk exposure is sensitive to factors extrinsic to the OCM methodology, including clinical phenotype, disease state and progression rate. Methods: Simulation was used to address omitted variable bias in payer data. We developed 9 key clinical MM scenarios to examine provider risk, based on conceptual frameworks that included patient- and cancer-level factors. The model was parameterized using the Medicare limited data set, research literature and domain knowledge. Twenty factors were varied for each model, e.g. age, autologous stem cell transplant (ASCT). Results: Simulations results showed MM risk for providers depended highly on cancer and patient level factors (see table). For example, high-risk patients were on average $21.5K over target while undergoing ASCT (despite risk adjustment for ASCT) and $18-28K under target for follow on maintenance (maint.) episodes. Conclusions: Provider exposure to risk in OCM is highly sensitive to factors at the cancer and patient level. The distribution of clinical phenotypes, state of disease, and rate of disease progression can significantly impact risk exposure for providers in OCM. New methodologies that model risk in more clinically granular ways are needed to improve VBP in oncology. [Table: see text]

Currency risk impact on the financial performance of multilateral banks

2015 ◽  
Vol 13 (1) ◽  
pp. 91-118
Author(s):  
Philip Kamau ◽  
Eno L. Inanga ◽  
Kami Rwegasira
Keyword(s):  
Financial Performance ◽  
Design Methodology ◽  
Regression Coefficient ◽  
Policy Implications ◽  
Stock Exchanges ◽  
Currency Risk ◽  
Content Type ◽  
Regulatory Status ◽  
The Impact ◽  
The Relationship

Purpose – The purpose of this paper is to investigate the impact of currency risks on the financial performance of multilateral banks (MBs). Financial performance is measured here by after-tax accounting profitability or losses. Design/methodology/approach – Quantitative hypothesis regarding the impact of currency risks on the financial performance of MBs was tested by a two-tailed t test for significance of the b regression coefficient. Findings – A regression analysis was done on the total currency risk and financial performance of MBs after taking into account currency risk over eight years. The analysis of variance of the regression of the b coefficient led to non-rejection of the null hypothesis of no association, F(1, 6) = 0.77, p > 0.05. The results of the two-tailed t test on the b regression coefficient suggest that the relationship between currency risk and financial performance is statistically insignificant. Therefore, it was concluded that there is no significant impact of currency risk on the financial performance of MBs. Research limitations/implications – The results of the study can be generalized only for MBs given their peculiar characteristics as wholesale banks, which are owned mainly by governments and are generally not listed on stock exchanges. Originality/value – The study is of value to those interested in the multilateral banking industry. To the authors’ knowledge it is the first study providing empirical evidence on currency risk impact on MBs financial performance. The study finds that the currency risk impact on the financial performance of MBs is insignificant. The results are also useful to managers of MBs in terms of benchmarking their effectiveness in managing currency risk compared to their peers and learn from better performers. It has also policy implications in terms of justifying the current self-regulatory status, shareholder monitoring and governance of MBs as they are not significantly impacted by currency risk as it appears to be effectively managed.

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