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Using derivatives to manage foreign exchange rate risk
Pham Thi Huong, Ly ; Brůna, Karel (advisor) ; Dohányos, Vojtech (referee)
The aim of my bacholor thesis is to characterize derivatives as a tool used to manage exchange rate risk. Derivatives allow not only reduce the risk from fluctuations of the exchange rate, but also offer the opportunity to achieve profits, because their characteristic feature is the effect of leverage, when with a small capital you can achieve impressive gains. But it is also associated with risks. In order to avoid possible loss, it is necessary their thorough knowledge. Therefore, I wanted to describe the main characteristics of various derivative instruments and their advantages and disadvantages in providing foreign exchange risks. In the practical part I dealt with the export company that is exposed to transaction and economic exposure resulting from business activities abroad. To reduce the transaction positions in the company, I just use financial derivatives, which appear to be appropriate tools for short-term volatility of exchange rate. The company faces the economic foreign exchange position, when there is the the long-term rate fluctuations, which affects its competitiveness not only at foreign but also domestic markets. In conclusion, I have indicated possible ways to reduce it.
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Foreign exchange rate risk management in international trade
Buchta, Martin ; Taušer, Josef (advisor) ; Černá, Iveta (referee)
Diploma thesis is concerned with foreign exchange risk management in terms of international trade. It deals with types of foreign exchange rate risk (transaction exposure, economic exposure, translation exposure) and their influence on business activity. Diploma thesis also focuses on the possibility of future foreign exchange rate's prediction. The main part of the thesis is devoted to various methods of foreign exchange rate risk management. These methods are analysed under two main groups, internal methods and external methods. Under internal methods, following techniques are analysed: netting, matching, leading and lagging, currency diversification, choice of invoicing currency and pricing policy. External methods focus on the use of financial derivatives, specifically currency forwards, currency futures, currency option and currency swaps. Analysis of exchange rate risk management using financial derivatives is supported with illustrative examples.
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Hedging
Procházková, Petra ; Dvořáček, Jiří (advisor) ; Smolák, Pavel (referee)
This thesis describes hedging transactions against foreign exchange rate risk which is a significant problem for a number of domestic companies trading with foreign partners. The objective of this paper is to characterize possible ways to eliminate or minimize a foreign exchange rate risk and to assess effects on economic results and liquidity of the company arising from the use of hedging instruments compared to the situation without hedging transactions. The practical analysis is shown on two Czech companies exposed to a foreign exchange rate risk. The analysis is focused on currency forwards negotiated with the bank and natural hedging in connection with an application of a hedge accounting.
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