Hedging currency risks

Currency hedging is one of the most sought-after financial products among companies that have experienced losses due to currency risk and recognized the need to manage it. AME Capitals offers a wide range of financial instruments and solutions designed to effectively manage risk in a volatile exchange rate environment.

Basic Concepts

Exchange rate volatility may adversely affect the financial performance and competitiveness of companies exposed to currency risk in their operations. They include but are not limited to the following:

Manufacturing and trading companies importing raw materials, production equipment or final products
Manufacturing and trading companies exporting final products
Companies with loans in foreign currency
Financial institutions with foreign currency assets and liabilities
Investors in foreign companies and securities

Many companies resort to traditional ways of mitigating currency risks, for example, the importer may price buyers in foreign currency or reduce the time of installment payments for them. Such internal mechanisms are very effective, but their capabilities may already be fully utilized at some stage, or their widespread use may have a negative impact on the company's competitiveness. In such cases, hedging with derivative financial instruments may be an appropriate mechanism for mitigating currency risks.

A derivative financial instrument is a contract between two parties whereby they acquire the obligation or right to enter into a transaction to buy/sell a currency at a future date under specified terms and conditions (a deliverable derivative financial instrument), or the cash payments on which are determined by the dynamics of a selected indicator (a non-deliverable derivative financial instrument), in this case the exchange rate.

Hedging of currency risks refers to the conclusion by a hedging company of transactions with derivative financial instruments to reduce currency risks arising in the course of its core business.

Thus, the task for the company becomes, firstly, to determine the currency risk profile, secondly, to choose a currency risk hedging instrument and strategy, and thirdly, to find a party to the hedging transactions. AME Capitals acts as a party to hedging transactions for the company, evaluating and offering terms on which a transaction with the parameters desired by the company can be concluded.