RMB urges businesses to hedge against exposures
Isaac Pinielo | Friday April 24, 2015 15:48
Hedging is defined as a risk management strategy used in limiting or offsetting probability of loss from fluctuations in the prices of commodities, currencies, or securities. In effect, hedging is a transfer of risk without buying insurance policies.
RMB officials at a risk management workshop held in Gaborone on Wednesday, discussed hedging instruments available in other African countries, cross-border banking in Africa and methodology when executing large hedges.
The workshop also covered cross-currency swaps when rising domestic funding for offshore operations, hedge policy frameworks, comparison of hedge effectiveness of different foreign exchange products and trade and working capital market instruments.
Speaking on the sidelines of the event, FNBB treasurer, Olebile Makhupe said the event was aimed at equipping their clients, who include small, medium and large enterprises, with the skills necessary to understand, evaluate and address risks to maximise the chances of business sustainability.
“As an African corporate and investment bank, RMB Botswana values the relationships it has built with its clients and will continue to assist in nurturing and encourage business growth and diversity in Botswana,” she explained.
She also noted that small, medium and large enterprises are exposed to market risk from foreign currency exchange rates, interest rates and commodity price fluctuations.
According to Makhupe, volatility relating to these exposures is managed on a global basis by utilising a number of techniques, including working capital management, selective borrowings in local currencies and entering into selective derivative instrument transactions issued with standard features.
Makhupe also said that they keep on finding ways to service their customers, noting that businesses are always exposed to market risk from foreign currency exchange rates, interest rates and commodity price fluctuations.
She advised businesses to utilise currency forward contracts, cross-currency interest rate swaps, local currency deposits and local currency borrowings to hedge portions of exposures relating to foreign currency purchases and assets and liabilities created in the normal course of business.
Makhupe added that interest rate swaps and debt issuances could be utilised to manage fixed and floating rate debt and to mitigate fluctuations in earnings and cash flows that may result from interest rate volatility.