Hedging of enterprise risks during the phase of object creation. Risk hedging. Financial risks of foreign countries and their insurance

A.G. Maltsev

LEASING AS A WAY OF SALES AND ECONOMIC FINANCING ...

LEASING AS A METHOD OF FINANCING OF SALES AND ECONOMIC ACTIVITY

AUTOMOTIVE INDUSTRY

A.G. Maltsev, Deputy Director of Development

SUE Samara region "Exxon", Togliatti (Russia)

Annotation: At present, most enterprises lack of funds to finance the expanded reproduction capacity. One reason for the lack of the necessary funds to finance the purchase of equipment. Also, many companies face the challenge of selling their products to customers in connection with a reduction in the population "s solvency. However, the leading foreign companies, along with the traditional lending used leasing. The paper discusses the application prospects of leasing companies for the automotive industry.

Keywords: credit, lysine, long-term lease, the lessor, the lessee.

UDC 338.24.01

CONCEPT OF RISK. ESSENCE AND METHODS OF RISK MANAGEMENT IN THE PRODUCTION SPHERE. HEDGING AS AN EFFECTIVE PROTECTION MECHANISM

D.V. Pomelov, Leading Engineer, JSC AVTOVAZ, Togliatti (Russia)

Abstract: The concept of risk is defined. The essence and main methods of risk management at enterprises of the manufacturing sector of the economy are described. The hedging mechanism is considered in detail as one of the most effective ways protection against risks.

Keywords: risk, financial activities enterprises, risk management, hedging.

The decision-making process in the economy at all levels of management occurs in the context of the constantly present uncertainty of the state of external and internal environment, which causes partial or complete uncertainty of the final results of activities.

In financial risk management, risk is mainly understood as the possibility of losing part of one's resources, losing income and the appearance additional costs as a result of entrepreneurial activity, which corresponds to the concept of uncertainty. ...

The problem of assessing the risks of financial and production activities of enterprises, including various accounting methods and ways to reduce risks, is currently the most urgent. Financial risk assessment becomes integral part production process, partly influencing the very direction of its development. The use of financial instruments with the correct identification of risks allows eliminating possible negative consequences in a volatile market environment. There are certain types of risks to which all entrepreneurial organizations, without exception, are exposed, but along with the general there are specific types of risks characteristic of certain types of activity.

There are many different classifications of the types of risk that a modern company faces. At least the following types of risks should be considered:

Production related to various violations in production process or the process of supplying raw materials, materials and components;

Commercial, related to the sale of products on the market not in full;

Financial risks that are caused by inflationary processes, non-payments, currency fluctuations, etc.

The company's managers are tasked with organizing management of all business risks, and primarily those that affect the company's achievement of strategic, production and financial goals. At the same time, the concept of "risk management" includes the identification and identification of key risks, decision-making on methods of measuring their probability and quantitative assessment of their consequences for business,

deciding on measures to control risks and their consequences, organization of risk monitoring.

Let us consider a detailed classification of financial risks of enterprises engaged in production activities. It is customary to distinguish between the following types of their financial risk:

Risk of loss financial sustainability and liquidity - due to the imperfection of the capital structure and the imbalance of the organization's cash flows.

The risk of insolvency is caused by a decrease in the level of liquidity of current assets and the inability of the organization to meet its short-term obligations.

The risk of a decrease in profitability is caused by a decrease in the efficiency of the organization, in particular, an increase in the level of its expenses and a decrease in the level of income.

The risk of making the wrong financial decision is the risk of losing money by the organization as a result of an incorrect assessment of the factors of the external and internal environment.

The risk of a decrease in the investment attractiveness of an organization is due to a decrease in its market value and a loss of financial stability.

Inflation risk - accompanies almost all financial transactions of the organization and is characterized by the possibility of devaluation of the real cost of capital (in the form of the financial assets of the organization), as well as the expected income from financial transactions in an inflationary environment.

Interest rate risk - consists in an unforeseen change in the interest rate due to an increase or decrease in the supply of free money resources, changes in the financial market environment under the influence of government regulation, etc.

Currency risk - manifested in the shortfall in the organization of the stipulated income as a result of the direct impact of changes in the exchange rate of foreign currency used in foreign economic operations.

Deposit risk - arises in connection with the possibility of non-return of deposits placed by the organization in banks.

Credit risk - manifests itself in the form of non-payment or untimely settlement for finished products issued by the organization on credit, as well as excess

a measure of the estimated budget for debt collection.

Investment risk - characterizes the possibility of financial losses in the process of the organization's investment activities.

Tax risk - due to the possibility of introducing new types of taxes and fees; the possibility of increasing the level of rates of existing taxes and fees; changes in the terms and conditions for making certain tax payments; the possibility of canceling existing ones.

In a turbulent economic environment, enterprises in the manufacturing sector face risks of changes in the cost of raw materials. Components, changes in exchange rates, and an increase in interest rates.

In the framework of this article, we will consider hedging as an effective protection mechanism against the above risks.

Hedging (from the English hedge - insurance, guarantee) is a position on forward transactions established in one market to compensate for the impact of price risks with an equal but opposite forward position (position on forward transactions) in another market. Hedging is carried out in order to insure the risks of price changes by concluding transactions on the derivatives markets.

The hedging mechanism consists in balancing liabilities in the cash market (goods, valuable papers, currency) and opposite in direction in the derivatives market.

The result of hedging is not only a reduction in risks, but also a decrease in potential profits.

Distinguish between buying and selling hedging. Buy hedges (buyer's hedge, long hedge) are associated with the purchase of a futures, which provides the buyer with insurance against possible price increases in the future. When hedging by selling (seller's hedge, short hedge), it is planned to sell real goods on the market, and in order to insure against a possible price decrease in the future, derivatives are sold.

There are several types of hedging: classic (pure) hedging - hedging by taking opposite positions in the market for real goods and futures. The first type of hedging used by agricultural traders in Chicago (USA);

full and partial hedging - implies insurance of risks in the derivatives market for the full amount of the transaction. This type of hedging completely eliminates possible losses associated with price risks. Partial hedging insures only part of the actual transaction;

anticipatory hedging - involves the purchase or sale of a futures contract long before the conclusion of a transaction in the market for real goods. In the period between the conclusion of a transaction in the derivatives market and the conclusion of a transaction in the market for real goods, a futures contract serves as a substitute for a real contract for the supply of goods. Also, anticipatory hedging can be applied by buying or selling an urgent deliverable product and its subsequent execution through the exchange. This type of hedging is most common in the stock market;

selective hedging - characterized by the fact that transactions in the derivatives market and in the market for real goods differ in terms of volume and time of conclusion;

cross hedging - cross hedging is characterized by the fact that in the derivatives market, an operation is performed with a contract not for the underlying asset of the real commodity market, but for another financial instrument. For example, in the real market, an operation is performed with a stock, and in the futures market, with a futures

to the stock index._

The most common type of hedging is hedging with futures contracts. The emergence of futures contracts was caused by the need to insure against changes in commodity prices. The first transactions with futures were made in Chicago in the commodity markets precisely to protect against sudden changes in market conditions. Until the second half of the 20th century, hedging (this term was already enshrined in some regulatory documents) was used exclusively to remove price risks. Currently, the purpose of hedging is not risk removal, but their optimization.

Futures (futures contract) (from eng and bear obligations to the exchange up to its fulfillment.

Futures can be viewed as a standardized form of forward that trades in an organized market and mutual settlements centralized within the exchange.

A deliverable futures contract assumes that the buyer must purchase and the seller must sell the specified amount of the underlying asset on the date of the contract. Delivery is carried out at the calculated price fixed on the last date of the auction.

Settlement (non-deliverable) futures assumes that only monetary settlements are made between the participants in the amount of the difference between the contract price and the actual price of the asset as of the date of the contract execution without physical delivery of the underlying asset. It is usually used for the purpose of hedging the risks of changes in the price of the underlying asset or for speculative purposes.

In addition to operations with futures, operations with other forward instruments, such as forward contracts and options, can be considered hedging operations. The sale of an option under IFRS cannot be recognized as a hedge transaction.

Forward (forward contract) - an agreement (derivative financial instrument) under which one party (seller) undertakes to transfer the goods (underlying asset) to the other party (buyer) within a specified time period or to fulfill an alternative monetary obligation, and the buyer undertakes to accept and pay this underlying an asset, and (or) under the terms of which the parties have counter-monetary obligations in the amount depending on the value of the underlying asset indicator at the time of fulfillment of obligations, in the manner and during the period or within the period established by the agreement.

Forward can be settled or delivered:

the settlement (non-deliverable) forward (NDF) does not end with the delivery of the underlying asset;

the delivery forward (DF) ends with the delivery of the underlying asset and full payment on the terms of the transaction (contract).

A forward OTC (deferred) transaction is a deliverable forward.

An open date forward is a forward contract for which a settlement date (settlement date) has not been determined.

The forward price of an asset is the current price of the forward contracts for the related asset.

Option (English option) - an agreement under which the buyer receives the right (but not the obligation) to make the purchase or sale of an asset at a predetermined price.

Assessing the effectiveness of risk hedging.

The following items of expense may be included in hedging costs:

The difference between the prices of the buyer and the seller in the market;

Losses due to unfavorable baseline changes;

Commissions to brokers and banks;

Costs associated with non-receipt of interest on funds; contributed as margin;

Option premium;

You can define five different measures of hedge effectiveness. Which one to apply depends on the purpose of the hedging:

Purpose: to achieve the planned financial result ("more is better, less is worse").

The concrete result may be the planned investment rate or the planned financial receipts from the transaction. The effectiveness of a hedge can be determined using the formula

Hedge effectiveness \u003d AC ~

where TAST is the actual financial result, T is the planned financial result. Purpose: to achieve the planned financial result ("less is better, more is worse").

This is similar to the previous case, except that the risk is in the opposite direction. Applies to the projected borrowing rate or projected cost of a project, goods, services, etc. and is calculated by the formula

Efficiency hedged \u003d 7at

Goal: to achieve the planned financial result with a restriction on the minimum acceptable result, the formula is used for the calculation

Purpose: to achieve the planned financial result with a restriction on the maximum acceptable result, the formula is used for the calculation

Efficiency _hedged \u003d - hp "

where TMAX is the maximum acceptable result;

Purpose: Any deviation from the current situation is considered undesirable.

Used when hedging a portfolio of financial instruments against any fluctuations in market rates, the formula is used for calculation

Effectiveness of hedge \u003d mini 1- .1+ J

where АТ is the change in the total value of the hedged portfolio,

AU - change in the total value of the unhedged portfolio.

This definition of hedge effectiveness does not allow for an effectiveness higher than 100%. The best achievable result is 100% efficiency, which is obtained when AT \u003d 0, that is, when the value of the hedged portfolio does not change at all. With any changes in the value of the portfolio, be they positive or negative, AT Ф 0, and the efficiency becomes less than 100%. If the hedge is completely ineffective, then AT \u003d AU, the hedge effectiveness score will be zero. Negative efficiencies can also be locked in if the hedge increases the impact of fluctuations in market rates.

The financial results for the hedge and risk should be presented as a whole.

For management market risks it is possible to use hedging instruments with a certain risk level management strategy, depending on the risk appetite. The possibility of using hedging instruments and the need for risk management can be assessed by analyzing their impact on the company's activities, specifics of contract pricing, i.e. the presence of a correlation between the price of contracts with hedging instruments presented in the financial market.

BIBLIOGRAPHY

1. Lobanov A.A., Chugunov A.V. Encyclopedia of Financial Risk Management / Ed. A.A. Lobanov and A.V. Chugunova - M.: Alpina Business Book, 2009 - 936 p.

2. Kurilova A.A. Methodology for choosing hedging instruments by automotive industry enterprises // Financial analytics: Problems and solutions. 2011. No. 17. P. 29-38

3. Kurilova A.A., Kurilov K.Yu. Hedging of currency and commodity risks with the use of options by enterprises of the automotive industry // Audit and the financial analysis... 2011. No. 2. S. 132-137.

4. Kurilova A.A. The use of financial engineering tools in the financial mechanism of cost management at the enterprises of the automotive industry // Vector science TSU. Series: Economics and Management. 2010. No. 2. S. 65-70.

5. Sluchak E. Comparative analysis insurance of currency risks with standard hedging instruments / E. Sluchak, D. Fonov, P. Dorokhov, A. Shishorin // Financial risk management. - 2011.- №4.

6. Ivanova EV, Financial derivatives: futures, forward, option, swap. Theory and practice. / E.V. Ivanova - M .: "Os-89", 2009. -192 p.

7. Kandinskaya OA Modern currency derivatives market // Management of corporate finance. -2009. -№5. -FROM. 50-58.

8. Pavlova E.V. Innovative futures contract as a tool to reduce financial risks // Bulletin of Kazan Technological University. 2011. No. 8. S. 229-238.

THE CONCEPT OF RISK. THE ESSENCE AND METHODS OF ENTERPRISE RISK MANAGEMENT OF THE PRODUCTION SPHERE. HEDGING AS AN EFFECTIVE

PROTECTION MECHANISM

D.V. Pomelov, senior engineer

JSC "AvtoVAZ", Togliatti (Russia)

Annotation: Defined the concept of risk. Describes the essence and basic methods of risk management on the manufacturing sector of the economy. Detail the mechanism of hedging as one of the most effective ways to protect against the risks. Keywords: risk, financial activities of the company, risk management, hedging.

Risk hedging - risk insurance. This insurance is provided by entering into transactions on another market. This is done in order to offset the price impact. After insuring the price, one of the results can be obtained: either the risks will be reduced, or the profit will be reduced.

What is risk hedging

In the modern economy, prices for most goods fluctuate every day. Not only manufacturers, but also consumers want to protect themselves from price surges by any means. Everyone wants to minimize the risks from adverse consequences that occur in the economy.

Of course, any company has financial risks. And it doesn't matter if it is an investment fund or agricultural production. These risks can be associated with many factors, for example: the risk that investments in assets may be impaired, the risk may be from the sale of products, and more. In another way, we can say that by performing its activities, the organization will receive either a loss or a profit. What organizations get will not be what they expect, because asset prices can change unexpectedly.

In order to reduce the risk of losses, it was decided to create financial instruments. In another way it can be called - hedging strategies. These instruments include options, futures and forwards. Reducing the risks with the help of these instruments was called hedging. If a company tries to reduce risks and thinks through a plan to protect itself from losses, then it builds a strategy.

Risk is not only an opportunity to lose, but also an opportunity to gain. Most often, people cannot take risks, so they themselves refuse large profits. They do this in order to reduce the risk of losing.

Any of the financial instruments, as well as cash flows, carry the risk of impairment. A generally accepted qualification has been established for these risks. The risks in this qualification are mainly divided into interest and price. Risks related to credit obligations are often singled out separately.

In connection with all of the above, hedging can be described as follows. Hedging is the use of any one instrument to reduce any risk that is associated with unfavorable factors that affect not only the price, but also have a relationship with other instruments.

All of the following will fully show the essence of hedging.

Most often, this word refers to the usual insurance of the risk of a jump in prices for a particular asset or interest rate using a financial instrument. If so the word hedging is easier to understand, then you can use this concept. The main thing to remember is that this concept refers to hedging financial risks. This is because the risks can be different.

But what is the financial risk. Market agents who are dependent on market conditions are exposed to this risk. These conditions include the interest rate, the price set for the goods, and the exchange rate. In most cases, hedging of financial risks is carried out at the expense of the existing developed markets. Moreover, each risk of this market will be shared among the participants.

The strategy is the basis for risk hedging. With the help of it, you can minimize those risks that are not desirable. Only because of this, the final result can affect the profit.

Hedging and its available types

You can find options hedging and re-hedging, and cross-hedging. The listed types of hedging are most common.

The first type is understood as the selection of positions with an asset, which will be the base for the option. Such a position is opened to reduce price risk. Reducing this risk is required not only for the seller, but also for the buyer. In another way, this type can be called the sale of options. But it should be noted that this state is not permanent. Changing prices of assets or options require corrective transactions or the sale of an asset to obtain another hedged condition - this is the definition of option rehedging.

The second type is understood as the fact that in the futures markets, transactions are made not with the underlying asset, but with a real commodity or some other financial instrument.

Hedging has its own classification. Let's see what she is.

Full hedging. When a full hedge is applied in the futures market, the transaction is fully insured at the time of risk. With such insurance of the transaction, the risk of losing something is completely eliminated. If the transaction is partially insured, and not completely, then the insurance is not fully implemented. Therefore, the risk of losses is present, albeit minimal. This is most often used when insuring and hedging investment risks.
Classic hedging. In another way, this species can be called pure. While hedging risks, another position is taken in the futures market or the market in which there is a real commodity.
Anticipatory hedging. This type means that fixed-term contract bought or sold before the actual deal is made. While a real and urgent trade is being made for a commodity, a futures contract becomes a contract under which the commodity can be received. Also, such hedging can be used when there is a sale or purchase of goods. urgent type, which will be further executed by the exchange. This hedging is most often found in the stock market.

Currency risks, what are they?

Currency risks can be described by more than one concept. But most often, foreign exchange risk refers to the risk of losing foreign currency during a purchase or sale. These risks are associated with the internationalization of the market for any transactions carried out by the bank, the creation of modern bank institutions and the diversification of their enterprises, and also presents possible fluctuations in the exchange rate and, as a result, monetary losses.

Currency risks are part of commercial risks. Each participant who is in international relations is exposed to these risks.

The change in the exchange rate is affected by many nuances, for example: the exchange rate changes if the value of the domestic currency also undergoes changes, the redirection of funds from country to country, speculation, and more. But, the currency has its own key factor, this is the trust of non-residents and, of course, residents. Trust in a currency can be considered a complex multi-factor criterion, which has several points, these are:

During the time of trust, trust in the political regime occurs, and the degree of openness of the country increases.
The ongoing liberalization of not only the economy, but also the exchange rate and macroeconomic indicators.

Currency risks can also be applied to such a concept as the danger of losses when a jump in the exchange rate of foreign currencies in relation to a given currency or during open currency transactions in the stock market or commodity market. In the case of import or export, foreign exchange risks are associated with foreign exchange. In the case of the exporter, he will have losses when the price falls. But this will be valid when the contract is concluded and the payment is made.

Currency risks

Hedging of currency risks - making a forward transaction to sell or buy a currency. This is done in order to prevent price spikes. In another way, we can say this is the acquisition of contracts for currency or their sale at the moment when the acquisition of currency is made, or the sale that is available. The negotiation execution and delivery time will be the same.

By hedging currencies, a person most often means the protection of funds from the adverse effects of exchange rates. It also implies the effective use of currency market instruments, which will be aimed at reducing the jump in currencies.

Who can be exposed to foreign exchange risks:

Those companies that are engaged in servicing loans in foreign currency.
Those organizations that buy goods abroad and have their revenues in rubles.
Organizations that have revenue in foreign currency, and the expense is in rubles.

Today, more and more often each company realizes that it is necessary to monitor currency risks. Cash flow management is not the main activity of every organization, but nevertheless it further affects the financial result. Therefore, many organizations use a method of hedging foreign exchange risks.

Methods for hedging currency risks

Even with the normal course of economic development, there are always risky situations. In this case, everyone takes their own position. The risk specialist must decide which method is best to apply in order to reduce or completely neutralize the risks.

Risk is classified as financial. To reduce it, you need to apply one of financial methodssuch as: insurance, limiting, diversification and hedging.

If you choose a hedging method, then you need to make an effort to reduce or compensate for the risks. Hedging is a complementary part of the ordinary course of business, trading firms and industry. The essence of this supplement is that there is insurance for price spikes. By using a hedging method, you can reduce your risk. Then the losses will be less.

The organization itself decides whether to use the hedging method or not. Also, this method can be applied in part. Hedging may be missing for two reasons. The first reason is that the company is not even aware of the risks involved, or it does not have the ability to mitigate these risks. The second reason may be that the company may believe that interest rates or the exchange rate will not change, or will change in their favor.

The most correct way to avoid incurring losses is to completely hedge all risks. But more often than not, financial managers of a company prefer to hedge risks in part. If prices fluctuate, they will hedge risks. If the fluctuations are in favor of the company, then the risks remain uncovered.

Options as a hedging method

Hedging of currency risks by options is created in order to reduce risks during a decline in the market value of an available asset, or to insure an asset against an increase in value. To protect the rate of currencies or stocks from a decrease in the market value, they resort to a method of hedging risks by purchasing PUT options. After that, the company will be able to sell these shares on time and at a set price. The person who sold the right to sell a share, or in other words, an option, is paid a premium.

But options also have their drawbacks. The person who sells options also doesn't want to be at a loss. In this case, most often the price for such options is set high.

Hedging with futures contracts

The futures market is an exchange market. Therefore, it is liquid and not subject to credit risk. The exchange's clearing houses work with exchange traders. They can enter into both long and short trades. In this case, they are helped by a margin trading system.

Futures are the easiest way to place a forward trade. Natural hedging is used in this transaction. With the help of futures hedging, you can fix the price of an asset on that very day or the interest rate.

The exchange has its own requirements. After the position is opened, you need to make the initial margin. The margin can be deposited with money or securities. After that, every day there is a revaluation of futures positions. The resulting difference is summed up with the amount of the deposited margin

With full hedging in the futures market, risks are fully insured. By using the futures hedging method, the risk of loss is eliminated. In a partial hedging, only part of the actual transaction will be insured.

Futures contracts have their merits:

Investment is not applicable. In this case, the margin is minimized.
Price sensitivity has a high correlation. In this case, the asset can be not only the basic one. And the practice of "cross" hedging has often begun to be used. In other words, "cross" hedging is the hedging of an asset by any forward contract for another asset.
Standardization. With the help of standardization, unlimited liquidity can be achieved on the exchange.

A futures contract also has its drawbacks:

Standardization. This property has not only a positive side, but also a negative one. There is no flexibility in standardization, so hedging with futures is not ideal. The lack of standardization can be remedied with forward contracts.
Basic risk. This risk arises while the portfolio is hedged.

Futures hedging has two types:

Buy hedging. This method is associated with the purchase of a futures, and also helps the buyer to insure himself against possible price increases in the future.
Selling hedging. A real product is being sold on the market. This is done so that the seller can insure himself against a possible fall in prices in the future.

Stock market. What role does hedging play in it?

Today hedging has become an integral part. The participants who take part in these transactions are called hedgers. These participants seek to sell or buy an asset in order to mitigate risks due to currency fluctuations. Each participant first of all tries to preserve his capital, profitability in this case is in the background. Simply put, hedging risks in the stock market is very important.

In order for this operation to be performed, a second party is required who wants to take this risk. The motivation for this person will be the opposite of the hedger's desire side. In this case, the interests of each party in the hedging can be achieved. One will receive stability and the other will receive income.

Hedging financial risks

When protecting financial instruments, hedging can be defined in its own way. Financial hedging is the use of financial instruments, both derivative and non-derivative, in order to fully or partially offset the changing value. It is easier to say to protect funds with one of the financial instruments. The price changes due to market conditions, fluctuations in currencies, the position in which counterparties are at the moment.

The required item to be protected by the hedge could be a financial liability or an asset that is exposed to changes in the price of the cash flow. In the hedging procedure, all existing losses are reversed. There is a symmetrical reflection on the income account and the expense account. After that, you can understand the company received a net loss or net income.

Financial risk hedging instruments are any financial instrument. These instruments do not include options if they are able to act as a hedging instrument. These derivatives are measured at fair value or amortization cost on an almost continuous basis. Income and expense hedges are terminated if the instrument has expired.

Financial risks of foreign countries and their insurance

Foreign banks, even with loans on the condition of collateral, do not seek to thoroughly study the borrower's credit history. It is easier for them to increase rates by an equal amount or more than the cost of monitoring borrowers. In this case, every foreign bank would not refuse to shift the risk to any insurance company.

Together with credit insurance, there is also a deposit insurance. In turn, the deposit is associated with risk. In this case, it will be the risk of non-return of the deposit. This can happen due to the bankruptcy of the bank, or if the deposit agreement is unilaterally terminated ahead of schedule. The expiration of the contract also applies to this case.

A slightly different system operates abroad in terms of insurance, but it does not differ much from ours. Therefore, insurance of financial risks abroad will be slightly different from our insurance.

In today's article, we will look at such a financial instrument as hedging. In fact, this is not some very complex term from economic theory, but just a mechanism for reducing financial risks. So let's figure out together what risk hedging is and how it works.

Nobody likes to take risks. True? Especially when it comes to the risk of losing money.

One way or another, there are always risks: the price of any commodity can skyrocket, and the rate of any currency can fall sharply. And this is normal, this is our world. Nevertheless, financial risks can and should be reduced.

Hedging is one of the most effective mechanisms for reducing risks in financial transactions. So let's find out how it works.

The word hedging comes from the English "hedge", which literally means protection or insurance. Speaking in simple words, risk hedging is risk protection. More specifically, protection from financial risks.

I will explain on real examplehow hedging works.

In English, the hedgehog is called hedgehog (hedge hog). His risk protection tool is needles

Let's say we have our own farm and we grow wheat. When the crop is ripe, we collect it and sell it. The proceeds from the sale will be our income.

Typically, wheat sales contracts are made in advance. Farmers agree on sales for the fall in the spring. At the same time, the volume of supplies is fixed in advance in the contract.

It is convenient to agree on deliveries in advance. After all, you don't have to look for a buyer for your products at the very last moment.

But what will happen if there is a grain harvest failure? Horror! We will not be able to fulfill our obligations. And here hedging can come to the rescue.

The easiest way to hedge is to do a reverse trade. That is, we can conclude an agreement for the purchase of grain.

Sounds a little strange. Why should we buy grain if we produce and sell it ourselves?

In fact, by concluding a deal to buy grain, we will protect ourselves from the risks of crop failure. This means that we will fulfill our obligations in any case. Well, if the harvest is still there, then we will simply sell both our harvest and the purchased one. In any case, we will not be left without money. Here is such a safety net.

Note that there are several types of hedging. Concluding a reverse transaction is just one option.

Nowadays, hedging is very often used when trading a wide variety of values. We can hedge currency transactions, precious metals, oil and other goods.

At the same time, it is not at all necessary to actually buy or sell any goods (such as grain). Most of the transactions today are carried out just for the sake of obtaining benefits. And we can hedge non-deliverable deals too.

Every third financial transaction in the world is associated with the purchase / sale of currencies. It's hard to believe, but according to statistics, people buy currency more often than bread.

In part, this is due to the actions of currency traders (speculators, in every sense of the word), who can conclude several currency transactions per day. In many ways, this is due to the export and import operations of companies.

Futures and foreign exchange clauses save your money from foreign exchange risk

One way or another, where there are operations with currency - there is a currency risk. That is, in simple terms, the risk of losses due to changes in exchange rates.

Through hedging, we can completely eliminate or severely limit this risk.

In practice, there are two ways to hedge currency risks:

Use to buy currency... That is, we can agree in advance on the purchase of the desired currency at a certain rate after a certain time in the future. Thus, we will completely protect ourselves from currency fluctuations.
Use of safeguard clauses... That is, when making transactions, we can agree in advance on the minimum and maximum rates. In this case, we will protect ourselves from a sharp change in the course and limit losses if the course goes in a disadvantageous direction for us. However, if the course goes "where it is necessary", then we will not be able to make much money on this either.

Examples of hedging transactions

Suppose we live in Russia and are engaged in oil production. We sell the extracted oil to Germany for euros at a fixed price: 100 euros per barrel of oil. In the end, we exchange the euros received from the sale of oil for rubles. Let the current ruble / euro exchange rate be 1 to 70.

However, as we understand it, the ruble exchange rate is not a very stable thing. It can fall quite sharply. And maybe it will grow. Therefore, it makes sense to hedge the currency risk so as not to lose your income due to exchange rate changes.

Suppose we have entered into futures contracts for the sale of euros for rubles at the rate of 1 to 70 in advance. But in reality, the rate fell to 1 to 60. In this case, we completely secured ourselves against currency risk. And if we had not done this, we would have lost 1,000 rubles for each barrel of oil sold.

Let's say we decided to use a currency clause and limited the rate in the range from 68 to 72 rubles per euro. Then, thanks to the currency clause, we will avoid significant losses. In fact, we will only lose 200 rubles per barrel, and without a currency clause we would have lost 1,000 rubles each.

In both cases, by hedging foreign exchange risks, we avoided major losses.

There are three main instruments for hedging risks: forwards, futures and options. I remember when I studied this at the university it sounded very difficult and boring. And in real work, these all three hedging instruments are quite convenient.

I will try to tell you in simple words how each of them works. No superfluous economic theory. 🙂

Forward hedging

If possible, risks should be reduced

Forwards are called not only strikers in football, but also special sales transactions, in which the date of the transaction and the course are fixed in advance.

Here's an example:

Let's say our company makes steel and sells it to Japan. Our Japanese customers are reliable partners and we have been working together for a long time. Therefore, we decided to negotiate with them and conclude a forward contract.

In the contract, we agreed that at the end of the year we will ship them one hundred thousand tons of steel products, and they will pay us in dollars at a specific price. Thus, both we and our partners completely secure ourselves against the risk of losses due to changes in steel prices. Whether it will rise in price or fall in price by the time of shipment is not important. After all, we agreed on the price in advance.

Overall, the forward is a great hedging instrument that is used very often in life.

A futures contract is, in fact, very similar to a forward. We also conclude a deal in advance on the purchase / sale of something after a certain period of time at a certain price. However, there is an important difference.

Futures are exchange-traded contracts, while forwards are not. That is, forwards are concluded directly between the seller and the buyer, and futures are concluded with the help of intermediaries: exchange dealers or.

What does this mediation give us?

Futures are the simplest and most popular hedging instrument

First, all exchange transactions, including futures, are standardized in terms of volume. There are so-called lots on the exchange, that is minimum dimensions conclusion of transactions. For example, if we are selling dollars, then the minimum lot is usually $ 10,000. You can't sell less!

Secondly, mediation gives us certain guarantees. That is, the chance that our partner will not execute the deal tends to zero. And when concluding a forward contract, there is such a risk and it is quite large.

Thirdly, the exchange helps us search for counterparties. In some cases, we do not need to look for someone to sell our goods to. The exchange does it itself.

But there is also a minus. The exchange takes a commission for its services. Fortunately, this is usually a very small commission.

In fact, futures are a versatile tool that allows you not only to hedge risks, but also just make money. Sometimes - practically out of thin air. Perhaps you will be interested in reading a separate article on how and how you can make money with them.

Options hedging

The use of options is one of the most popular hedging instruments. Let's take a look at what options are and how they work.

Options are special contracts that give the right to buy or sell a commodity at a specified price. This is precisely about the right, but not about the obligation.

A simple everyday example.

Let's say we want to go on vacation to the USA and we need dollars. We have already saved up some amount in rubles for vacation. However, what will happen to the course by the time of our vacation is not clear. Therefore, we decided to enter into an option to buy dollars at the rate of 60 rubles per dollar.

If the rate goes up, then we use our option and buy dollars at sixty. And if the rate suddenly fell sharply, then we do not use the option and buy dollars at the actual price. After all, it will be more profitable.

Options are a very convenient hedging tool. However, there is one unpleasant nuance here.

When concluding an option, we must make some kind of security deposit. If we use the option, we get the deposit back. And if we don't use it, no one will return the deposit to us. It will be a kind of payment for the fact that we decided not to close the deal.

Therefore, before refusing to use the option, it is important to calculate what is more profitable: to make a deal at a higher rate or at a lower one, but lose the security deposit.

Note that the size of the security deposit is usually 2% -10% of the transaction amount. However, the percentage can be higher.

Historically, two types of options have been distinguished: "Put" and "Call". The difference between the two is that “Put” is a put option and “Call” is a buy option. In fact, one gives us protection from falling prices, and the other from rising.

Hundreds of thousands of people around the world earn or try to make money on Forex. This business is, of course, very profitable. But also very risky.

You can, literally, in a matter of days earn tens of percent of the profit thanks to. And you can lose your money.

Of course, I would not want to lose. With the help of hedging, we can just protect ourselves when trading Forex.

Do not know where will go price? Open a hedging trade and everything will be OK

And how to do it? There are no forwards, futures and options in Forex. But, you can use the classic hedging scheme.

Let's say we opened a deal to buy oil for dollars. The oil price has remained stable for several weeks. And then we learn about the upcoming meeting of oil exporting countries. As a result of this meeting, the price of oil could rise sharply (if, for example, they agree to cut production). Or it may fall sharply. In general, there is no certainty.

We can simply take and open a reverse trade (to sell oil for dollars) in the same amount. It turns out that we will simultaneously have two transactions open, the result of which will be zero. But, on the other hand, we will secure ourselves against possible consequences if, as a result of the meeting, the oil rate goes not where we would like.

Relatively speaking, if we have agreed to cut production, then we close the hedging deal and observe how oil increases in price, bringing us a profit. And if we haven’t agreed, then we close the original trade (buy) and leave the hedging trade (sell). Oil falls in price and the sell deal brings us a profit.

Just in case, let me remind you that when trading Forex, we can sell any goods, even if we have not bought them before. In essence, we trade in air. So it is possible. 🙂

At the end of the article, I want to note once again that the essence of hedging is not about making a profit, but about protecting against risks. Hedging has already saved and continues to save hundreds of thousands of traders from losses. I will be glad if the information from this article will help you too.

I would be grateful for your questions / opinions on what is risk hedging in comments.

I wish you a profitable investment!

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To minimize the risks of price fluctuations in both existing stocks of goods and goods that are the subject of future supplies, many businesses have turned to the futures markets, joining producers and consumers of agricultural products who have used futures contracts to insure prices for many decades.

None, even the best forecasts, can completely eliminate market uncertainty (elements). And where there is uncertainty and chance, there is inevitable risk.

Operations to insure price risk by trading futures contracts are called hedging (hedge). Participants in futures trading who pursue this goal are called hedgers. The hedgers are persons associated with real trading, i.e. sellers and buyers of cash goods who seek to hedge against adverse changes in the prices of their goods.

Although hedging with futures contracts has become an integral part of many sectors of the economy, it is not the only defense against price fluctuations. For example, in many areas of production and finance, futures contracts do not exist, but there are profitable enterprises that either have found another way to protect themselves from short-term fluctuations, or have adapted to the cyclicality of profit and loss.

Previously, hedging only concerned tangible commodities for which the risk of stocks or forward sales is easily identifiable, but now hedging covers a range of financial instruments as well. Rising interest rates and surging currencies make owning cash or committing to lend more risky than it was several decades ago.

Hedgers are market participants who use futures and options to reduce the risk of price fluctuations. Their participation in futures trading is associated with real transactions related to the commodity or financial instrument underlying the futures contract.

The existence of hedgers is, in a sense, the economic justification for the existence of the futures and options markets. Hedgers are suppliers of real goods and services, while futures and options markets contribute to improving the efficiency of their activities. Futures trading could not exist without active participation hedgers. It is hedgers who provide a regular and two-way flow of orders to buy and sell, which ultimately ensures the success of a futures contract. Unlike speculators and traders, who can switch their interest from one market to another, hedgers are, in a sense, "captives" of their market. It is their constant attention to price changes that ensures the regular flow of orders and transactions in the futures markets.

The number of real market participants whose interest in reducing price risk makes them hedgers varies depending on a number of factors:

the volume of the relevant cash market;

the level of price volatility (possible risk);

knowledge and availability of futures and options markets.

Different types of hedgers conduct their futures transactions differently. Thus, producers and consumers of goods often have large volumes of futures contracts, but transactions with them are relatively rare. Their positions often remain unchanged for weeks or even months.

Before deciding whether to use a hedging mechanism, each entity must determine the sources, amount and type of risk to which it is exposed.

Financial risk can relate to various aspects of the enterprise.

1. Available stocks. In this case, the risk is associated with the possession of real goods and financial instruments for which no deals have been made to sell at a fixed price. For example, a firm has a stock of metals in a warehouse or bonds from its dealer, which lose their value when prices fall.

2. Stocks of semi-finished products. This risk category includes real goods that have been processed and differ slightly from those specified in the futures contract specification. For example, petroleum stocks or stocks finished products... The degree of processing of goods and their distance from the standard futures contract makes hedging a less reliable way to reduce risk.

3. Future products. This category includes a future harvest or a non-bargained product produced. In this case, the risk of falling prices will affect the profitability of production. In some cases, a price drop below the level of production costs will result in a loss for each unit produced.

4. Future purchases. Producers who use raw materials for their production bear the risk of possible price increases when purchasing in future periods.

There are various methods to mitigate the risks of the cash market. But the chosen method of risk reduction should have the following properties: be easily accessible, not significantly affect the flexibility of enterprise management, and not be too expensive.

These criteria are fully met by futures contracts - highly liquid instruments that can be easily purchased and sold at any time.

Hedging means buying or selling contracts for a period of time on a commodity, the price of which must be insured.

Hedging operations would not have been possible without close relationship prices of the real and futures markets. Of course, in practice, the prices of the real commodity differ slightly from the prices of futures contracts, so perfect hedging is almost impossible. However, these deviations are not significant enough to justify the benefits of the hedge.

There are two types of hedging according to the operation technique: short hedge - sale of futures contracts, long hedge - purchase of futures contracts,

In addition, hedging can be carried out using options transactions.

Any hedging transaction consists of two stages. On the first, a position on a futures contract is opened, on the second - it is closed with a reverse transaction. At the same time, with classical hedging, contracts for the first and second positions must be for the same product, in the same quantity and for the same delivery month.

Selling hedging is the use of a short position in the futures market by someone who is long in the cash market. This type of hedging is undertaken to protect the sales price of an item. It is used by sellers of real goods to insure against falling prices for this product. This method can also be used to protect stocks of goods or financial instruments not covered by forward transactions. Finally, a short hedge is used to protect the prices of future products or forward purchase agreements.

Consider a situation in which a price fixing mechanism is shown using hedging at Typhoon OJSC.

The company wants to hedge against a possible fall in the price of shares (usually this is done using futures contracts on the stock index, and not on the shares themselves). He has a share, which now costs 100 rubles, and in a month he will need money to buy raw materials. However, expecting that the share price will fall by the time of purchase, and he will not be able to pay for the purchase, he resorts to hedging in advance:

a), for example, in January he sells a futures contract for shares with delivery in three months at a price of 110 rubles per share and thus fixes his price in advance. In stock jargon, this is called "to lock the price";

b) when selling shares on the real market in February, he actually sells it at a price lower than the desired one - for 90 rubles;

c) futures contracts are simultaneously liquidated (redeemed) at the current price of the futures market - 100 rubles. The result looks like this (tab. 25):

Table 25. Long hedge

Profit 10 rubles.

Final price: 90 + 10 \u003d 100 rubles.

As a result of this operation, losses in the cash market were offset by profit from hedging, which allowed Typhoon OJSC to obtain the target price level.

Knowing the approximate volume of its shares, the company can insure the entire amount sold. So, if he knows that the number of his shares is 20 thousand, then he will acquire four futures contracts, 5 thousand each. At the same time, if, in the above example, prices on the cash market rose, contrary to expectations, then the additional profit received here would go to compensate for losses on futures transactions (Table 26).

Table 26. Short hedge

Loss of 5 rubles.

Final price: 105 - 5 \u003d 100 rubles.

This example clearly shows that hedging not only reduces potential losses, but also deprives of additional profits. So, in the second case, the owner of the shares could get additional profit by selling the shares for 105 rubles, if he did not resort to hedging. Therefore, Typhoon OJSC usually insures not the entire volume of production, but some part of it.

Hedging with futures contracts has several important benefits.

There is a significant reduction in the price risk of trading in commodities or financial instruments. While it is not possible to eliminate risk entirely, a well-executed hedge in a market with a relatively stable basis will eliminate a large portion of the risk. It enhances stability financial side business, minimizes fluctuations in profits caused by changes in commodity prices, interest rates or exchange rates. The hedge does not interfere with normal transactions and allows for ongoing price protection without the need to change inventory policies or engage in inflexible forward agreements.

Hedging provides more planning flexibility. Since futures contracts exist for many months of future delivery, an entity can plan ahead.

Analyzing the above examples of hedging, you can see that this transaction was used as temporary substitution real market transactions that will take the form of an immediate delivery transaction.

In order to use forward instruments to hedge price risk, a company must follow these steps:

1. Choose a trading floor and a fixed-term contract traded on it that best suits its needs. At this step, additional analysis is required, since there is not always a fixed-term contract that fully corresponds to the object of a commodity transaction.

2. Select a clearing company (a company that controls the movement of funds and guarantees the fulfillment of obligations under transactions), accredited on the relevant exchange, as well as a stock broker that will execute trade orders.

3. Complete standard forms and sign service contracts.

4. Open an account with a clearing company and transfer a certain amount of funds to it, used as security for the fulfillment of obligations on open positions (usually about 10% of the planned transaction amount). Many exchanges and clearing companies set a minimum amount of funds that must be credited to a trading account upon opening it (usually $ 10,000).

The main results of the research carried out in this chapter, conclusions and recommendations are as follows:

1. To calculate the assessment of the impact of financial risks on the effectiveness of an investment project, use software products;

2. At the present time, the computer analytical system Project Expert has been widely introduced at JSC Typhoon for solving the following tasks:

Development and analysis investment projects;

· Determination of the need for funds for prospects;

· Assessment of the financial risk of the project;

· Analysis of break-even of manufactured types of products;

· Analysis of management decisions.

3. Project program Expert is officially recognized by the Ministry of Economy and the European Bank for Reconstruction and Development, which allows Typhoon OJSC to prepare financial statements in accordance with international standards.

4. Modern techniques hedges are promising for minimizing financial risks through futures contracts.

5. Hedging provides more planning flexibility since futures contracts exist for many months of future delivery and Typhoon can plan ahead.