As a hedge against currency risks

Unfortunately, with the credit scheme has several disadvantages excessive lending affects the capital structure (ie, making the company less attractive to investors), and requires time for the credit committee of the bank. Therefore, the management soon began to seriously consider options for hedging through currency forwards, derivatives, options, futures and swaps.

Derivatives market

As is known, the secondary market for financial instruments (this is the term stands for "derivatives") ended in Russia after the 1998 crisis, in fact, has not begun. After a sharp depreciation of the ruble, many Russian banks were forced to abandon their commitments to deliver U.S. dollar forward contracts / ruble, which they concluded before the crisis. Moreover, the domestic courts have recognized forwards transactions "bet", ie not subject to judicial protection. Thus, the legitimacy of such operations was staged in Russia in serious doubt. There was no way. Schemes were developed hedging with derivatives, began negotiations with the banks. They were mostly foreign banks, as Russia did not offer similar products - partly because of the post-crisis fears, partly because the country lacks the market for these instruments, and thus can not block their risks commitments.

Thus, the forward.

Forward - this is an urgent transaction where the buyer and seller agree on the delivery of the underlying asset (in this case - the euro against the dollar or ruble) at a given date in the future, while the base price set at the time of the transaction. Forwards - it is always the OTC product. In practice, it looks like. The company makes a deal with the bank to supply euro for dollars, say, a month. Directly negotiated rate - say, $ 1.1 per euro. If after a month the amount to $ 1.2 per euro, the company will save 10 cents on every dollar. With $ 1 million in savings of $ 100 thousand If the rate will fall to parity (11), the loss of the same amount to $ 100 thousand and avoid those losses (in the case of depreciation) can not forward - it's a liability (the so-called problem is solved structured forwards and options - but this is a topic for the next item.) In addition, the forward has two more unpleasant properties. First, it is to go through the credit committee of the bank, which sells forward (the bank is required to assess the credit risk of the buyer.) Secondly, the forwards have a negative impact on the liquidity of the company. Say, the situation has changed, and the supply euro was not necessary (eg, payment in Euro provider, under which was bought forward, canceled or postponed to a later date.) What then do nothing, the company must put dollars and get unwanted euros. In short, the forward was highly inconvenient product, although that forwards are the most in the derivatives market.


Futures - is also a forward transaction. Futures differ from forwards in that it is a product exchange, which means that the conditions (time, amount) are standardized. In addition, the buyer makes a payment center exchange deposit margins, as well as unfavorable exchange rate movement (in this case is - the growth of the dollar against the euro), the variation margin, which guarantees the fulfillment of obligations to the seller bought futures. If the dollar falls, making a variation margin is the seller.