Hedge – Effects of contracting swap derivatives on the balance sheet of contracting companies Luciana Cristina Boldino, Sergio Antonio Loureiro Escuder

Abstract

Exchange rate risk management, which can be defined as the possibility of adverse volatility of indexes between currencies during a trading period (e.g. between the quote date and the settlement date) and/or the possibility of a loss or gain resulting from a variation in exchange rates between currencies, is explicitly suggested to companies that work with foreign currencies, based on the premise that it is necessary to be aware of possible risks in order to assume them responsibly, as well as to be aware of the vulnerability to external factors that such a scenario is exposed to, for good financial planning in order to achieve cost minimization and profit maximization, thus determining the cash flow margin that will be linked to the exchange rate. One way to minimize exchange rate risk is to explore exchange rate hedging instruments. The financial market offers tools as a form of protection, e.g. Hedge, therefore this study will be conducted, analyzing hypothetical scenarios applying realistic indexes with the purpose of measuring whether the effect obtained by contracting/applying this instrument offered “hedge” generates value for the company or whether it functions strictly as a form of protection against possible market fluctuations, allowing efficiency in the risk and financial management of the contracting companies.