Mutual funds currency risk management is analyzed in this bachelor paper. It aims to analyze hedging by currency forward and options under different hedge ratios and various durations of the contracts. Afterwards the outcome is compared to non-hedging. After comparing hedging on six emerging markets equity indexes, it is concluded, that fund managers should hedge not all the time, but only when they expect foreign currency to depreciate. It is shown that forward contracts are better means than options for currency risk insurance purposes. Moreover, it is demonstrated that hedging with the shortest duration forward contracts is most effective and it is recommended to use the hedge ratio of 50 %. / Bakalauro baigiamajame darbe yra analizuojama valiutų rizikos valdymas investiciniuose fonduose. Darbe analizuojamas valiutų rizikos draudimas ateities ir pasirinkimo sandoriais, bei gauti rezultatai palyginti su rezultatais kai rizika nebuvo valdoma. Išanalizavus šešių besivystančių rinkų akcijų indeksų valiutos draudimą, buvo prieita išvados, jog fondų valdytojai valiutą turėtų drausti ne nuolatos, o tik kai jie tikisi jog užsienio valiuta silpnės. Be to, darbe parodoma, jog valiutų draudimas ateities sandoriais yra geresnis būdas valdyti valiutos riziką nei kad pasirinkimo sandoriai. Taip pat pademonstruojama, jog trumpiausio periodo ateities sandoriai yra efektyviausi valiutų rizikos valdymo tikslais bei rekomenduojama naudoti 50 % draudimo koeficientą.

SAMMANFATTNING Titel: Valutariskhantering vid rörelseexponering - En kvantitativ studie av svenska börsföretag Nivå: C -uppsats i ämnet företagsekonomi. Författare: Gustaf Bergquist och Jimmy Mattsson. Handledare: Peter Lindberg. Datum: 2015 - juni. Syfte: Syftet med studien är att studera förekomsten av skillnader och likheter mellan svenska börsnoterade företags hantering av rörelseexponering mot valutarisk beroende på vilket segment de tillhör på Stockholmsbörsen. Metod: Studien är av kvantitativ natur med en deduktiv ansats. Data har samlats in genom internetbaserade enkäter som sedan har ställts mot tidigare forskning och teorier. Utfallet har sedan analyserats genom korrelationsanalys och presenteras tillsammans med resultatet. Resultat & slutsats: Studiens resultat visar på förekomsten av flertalet skillnader och likheter vad gäller hantering av valutarisk som kan kopplas till segmenttillhörighet. Den slutsats som dras i studien visar att benägenheten att skydda sig för rörelseexponering mot valutarisk och att hantera valutarisk internt är störst hos företag på Large Cap och att benägenheten att ta hjälp externt vid valutariskhantering är störst hos företag på Small Cap. Gällande förekomsten av storleksrelaterade likheter visar studien att dessa är relativt små. Förslag till fortsatt forskning: Då denna studie är av kvantitativ natur skulle det i framtiden vara intressant att komplettera enkätundersökningen med intervjuer för att ge en bättre förståelse kring valutasäkringsprocessen. Ett annat potentiellt förslag till vidare forskning är att utöka antalet respondenter och förslagsvis inkludera den danska börsen som är snarlik den svenska börsen för att hitta skillnader och likheter mellan börserna. Uppsatsens bidrag: Studiens teoretiska bidrag kan bidra till att ge en djupare förståelse av fenomenet valutariskhantering där studien kan fungera som en förklaringsvariabel till utfall som är relaterade till detta område. Studiens praktiska bidrag kan ha stor relevans för mindre företag som är i uppbyggnadsfasen av sin riskhantering och därför vill veta vilka alternativ som finns vid ett beslutsfattande. Nyckelord: Valutarisk, riskhantering, rörelseexponering, valutasäkringsmetoder, skillnader och likheter, segmenttillhörighet. / ABSTRACT Title: Currency risk management in operating exposure - a quantitative study of Swedish listed companies. Level: Final assignment for Bachelor Degree in Business Administration. Author: Gustaf Bergquist and Jimmy Mattsson. Supervisor: Peter Lindberg. Date: 2015 - June. Aim: The purpose of this study is to examine the existence of differences and similarities between Swedish listed companies’ management of operating exposure to currency risk, depending on segment affiliation at the Stockholm Stock Exchange. Method: This study is of quantitative nature with a deductive approach. Data have been collected through Internet based questionnaires, which later have been set against previous research and theories. The results have been analyzed through correlation- analysis and presented along with the results.  Result & Conclusions: The results of the study shows that the majority of the differences and similarities in terms of managing currency risk can be linked to segment affiliation. The conclusion drawn in the study shows that the tendency to protect the company’s exposure to currency risk and to manage foreign currency risk internally are highest among companies on Large Cap and that the tendency to request help externally are greatest among companies on Small Cap. Regarding the presence of size related similarities, the study shows that these are relatively small. Suggestions for future research: It would be interesting to complement the survey with a few interviews in order to provide a better understanding regarding the hedging process. Another potential suggestion for further research is to expand the number of respondents and include the Danish Stock Exchange that is similar to the Swedish Stock Exchange in order to find differences and similarities between the two Stock exchanges. Contribution of the thesis: The theoretical contribution can help provide a deeper understanding of currency risk management and therefore serve as an explanatory variable of the outcomes related to this area. The practical contribution can have great relevance for smaller companies that are in the construction phase of its risk management and therefore want to know what options are at their disposal. Key words: Currency risk, risk management, operating exposure, hedging methods, differences and similarities, segment affiliation.

[pt] Esta tese de doutorado compõe-se de três artigos, sendo dois em finanças empíricas e um em microestrutura de mercado. O primeiro artigo estuda de que forma movimentos nas curvas de juros futuros em Reais e Dólares Americanos negociados na BM&F estariam relacionados com duas medidas de prêmio de risco cambial, uma à priori, calculada com base nas expectativas de variação cambial três meses à frente apuradas pelo Focus-BC, e outra à posteriori, calculada sobre a variação cambial efetiva realizada nos mesmos três meses. Os resultados mostram que movimentos da curva de DI parecem mais correlacionados com a variação cambial efetiva do que com as expectativas coletadas entre os agentes. O segundo artigo é uma variação do modelo de Ang e Piazzesi (2003), e investiga a contribuição do mercado de câmbio sobre o prêmio a termo na curva de juros futuros em Reais no Brasil. Usa-se uma UIP no lugar de uma Regra de Taylor para modelar a dinâmica da taxa de curto prazo, o que nos permite substituir as variáveis macro usuais de inflação e produto pela expectativa de variação cambial e prêmio de risco cambial na especificação do prêmio a termo na curva. O terceiro artigo propõe um modelo de mercado interdealer em três estágios onde o processo de revelação de informação é modelado como um sinal ruidoso e invertido de forma seqüencial nos dois estágios de negociação no mercado inter-dealer que se seguem à transação inicial. As simulações realizadas sugerem que a diversificação de risco na economia diminui quanto maior a precisão do sinal nos dois estágios. / [en] In this thesis we discuss two empirical essays in finance and one in market microstructure. The first article studies the joint dynamics of the two most liquid term structure of interest rates traded at BM&F, one in Brazilian reais and the other in US dollars, and two currency risk premia measures. One currency risk premia measure is obtained using currency expectation surveys conducted by the Central Bank of Brazil, while the other will be residual from the three month forward premium traded each day and the effective currency observed on the liquidation date three months after. Results show that the term structures will explain some of the realized currency risk premia observed three months after. We see this as an evidence in favor of information in the curves more correlated to the effective currency movement in three months than the expected devaluation. The second article proposes and extension of the framework introduced by Ang and Piazzesi (2003) to accommodate a no- arbitrage term structure model with macro factors. We replace the usual inflation and output macro factors for two currency variables, the expected currency devaluation and the currency risk premia. Results here show a better fit when compared to existing models estimated for Brazil. The third article proposes an inter-dealer market model in three stages, where disclosure of information is modeled by noisy informative signals. Simulations show that dealers better informed will play strategically to avoid revealing information and the risk-sharing in the economy will be lower when we increase the precision of the informative signals.

My thesis was designed to further assess the impacts of introduction of the euro in Czech Republic on exporters with a closer focus on foreign currency risk and the possibility of its elimination.

The object of my graduation thesis is setting value of CeWe Color, a.s. by methods DCF and finding the influence of deflections of exchange rate to the company. For setting value were used strategic analysis, financial analysis and financial plan. The resulting value was set to 539 449 thousand czech crowns.

The main focus of this work is on hedging of currency risks with special emphasis on the case of Czech export. In the first chapter, I create a motivation for further studying of the problem. I describe the state of export industries and the economy as a whole and how these aspects are connected to the exchange rates. In the second chapter, I explain how firms create their assumptions about future exchange rates. I also run a Monte Carlo analysis on historical data and come with predictions of my own. In the third chapter, I am discussing the relevance of using VaR models for estimating the maximum possible loss of funds due to unwanted moves in the exchange rate. Furthermore, I describe various instruments usable for hedging of currency exposure including forwards, options, swaps and other derivatives. In the final chapter of this work, I am asking financial and sales directors of 51 Czech firms about how currency risks influence their businesses and how they protect themselves against these threats.

The subject of the Master thesis „Financial Derivatives in Praxis“ is the analysis of the all kinds of financial derivates.The first part of the thesis deals with the general description of the derivates. In the next part of the thesis analysis of individual spices of derivates and their dividing into interest rate derivates and currency derivates is made. The final, practical part of the thesis, is devoted to the practical using of derivates in the hedging interest rate and currency risk on specific examples of companies and the offer of hedging on the Czech financial market.

[pt] A globalização mudou a forma como as empresas fazem negócio. Transformou investimentos, mercados consumidores, importações e exportações de produtos e serviços de escala local para a planetária. Como ônus, as empresas passaram a lidar com o risco cambial – valorização ou desvalorização de sua moeda. Instrumentos financeiros foram criados com o objetivo de reduzir a variância causada no fluxo de caixa, embora não seja o único fator a ser considerado quando da decisão de se contratar uma proteção cambial (hedge). O estudo tem por objetivo fazer uma análise de sensibilidade da chance de ocorrência de um encontro entre as curvas de entradas e saídas de caixa de uma empresa exportadora, utilizando o modelo Copeland e Copeland (1999), em situações antes e após a contratação de um hedge. Com os resultados, é possível medir os benefícios (ou não) da contratação desses instrumentos, por meio da redução (aumento) na probabilidade de ocorrência de dificuldades financeiras nos dois momentos. / [en] Globalization has changed the way companies do business. It took investments, consumer markets, imports and exports of goods and services from a local to a global scale. With this, companies began to deal with foreign exchange risk - currency fluctuations. Financial instruments were created to reduce variance in the cash flow, although this is not the only aspect to consider when companies decide to adopt a foreign exchange hedge. The purpose of this study is to carry out a sensitivity analysis of the probability of export company s cash in flow and out flow curves meeting, using the Copeland and Copeland (1999) model, before and after contracting a hedge. With the results, it is possible to measure the benefits (or otherwise) of contracting these instruments by means of reducing or increasing the probability of financial difficulties occurring in both cases.

[pt] Este trabalho objetiva, por meio da utilização de um modelo de paridade coberta de juros ajustada aos riscos país e demais riscos (sobretudo domésticos), verificar, estatisticamente, quais são os determinantes da taxa de juros brasileira para títulos públicos pré-fixados de longo prazo - no caso, as Notas do Tesouro Nacional Série F (NTN-Fs) de prazo aproximado de 10 anos, com vencimento em 2017. A variável dependente foi definida como a taxa de retorno das respectivas NTN-Fs, ao passo que as variáveis independentes ou explicativas foram a taxa livre de risco dos Treasuries norte-americanos de 10 anos, o prêmio de risco Brasil e o risco cambial. Os demais riscos (especialmente domésticos), por se tratarem do diferencial entre as NTN-Fs e as outras variáveis, encontram-se dentro do componente de termo do erro. Tendo em vista que as variáveis independentes possuem fortes relações de multicolinearidade - o que trouxe resultados visados para o coeficiente de determinação e aqueles individuais -, optou-se por rodar um modelo VAR e, a partir do mesmo, extrair os graus de endogeneidade de cada variável. Assim, foi possível observar o grau de importância e causalidade das variáveis individualmente e se o modelo estava corretamente especificado - ou seja, se a taxa de juros das NTN-Fs de longo prazo foi de fato explicada pelas demais variáveis. As principais ferramentas do modelo VAR - decomposição de variância e funções impulso-resposta - permitiram tirar importantes conclusões acerca dos impactos defasados de variações ou choques ocorridos nas variáveis independentes sobre a taxa de juros das NTN-Fs analisadas. Os resultados comprovaram que a taxa de juros das NTN-Fs é a variável mais endógena do modelo e, portanto, a dependente, além disso, mostrou que o risco cambial é a variável menos endógena, indicando sua importância cada vez menor na formação das taxas de juros de longo prazo no Brasil. A conclusão mais relevante, contudo, foi a evidência de que existe uma correlação negativa entre a taxa de juros livre de risco e a taxa dos títulos de longo prazo brasileiros, contrariando, pelo menos em 2007, a Teoria das Carteiras, que prevê uma relação positiva entre a taxa livre de risco e o retorno de um ativo. / [en] This study aims to verify statistically, through the utilization of an interest rate covered parity model adjusted to the country-risk and other risks (domestic, mainly), what are the determinants of Brazilian interest rates for long-term public fixed income securities - in this case, the so-called National Treasury Notes - Series F (NTN-Fs) with maturity in approximately 10 years, more precisely, in 2017. The dependent variable was defined as being the yield- to-maturity of the respective NTN-Fs, whereas the independent or explanatory variables were the risk-free rates of the US 10-year Treasuries, the Brazilian country-risk and the exchange rate risk. The other risks (especially domestic ones), as well as they reflect the differential between the NTN-Fs and the other variables, are one of the error term components. Given that the independent variables have strong multicollinearity - which brings biased results to the determination and individual coefficients -, we opted for using a VAR model and, based on it, obtain the endogenous degrees of each variable. Then, it was possible to observe the causality and importance level of the variables individually and if the model was correctly specified - that is, if the long-term NTN-Fs interest rates were in fact explained by the other variables. The main VAR model tools - which are the variance decomposition and the impulse-response functions - allowed us to make important conclusions about the delayed impacts of variations or shocks occurred in the independent variables over the analyzed NTN- Fs interest rates. The results proved that NTN-Fs interest rate is the most endogenous variable of the model and, therefore, the dependent one. The results also showed that the exchange rate risk is the less endogenous variable, suggesting it has a decreasing importance for the long-run interest rate building in Brazil. However, the most important conclusion was the evidence that there is a negative correlation between the risk-free rate and Brazilian long-run securities interest rates, opposing, at least in 2007, the Portfolio Theory, which foresees a positive relationship between the risk-free irate and the return of an asset.

This thesis consists of five separate papers, broadly within the field of International Finance. The first paper, An Empirical Analysis of the Currency Denomination in International Trade, investigates the choice of currency in international trade transactions by Swedish exporting firms. It uses an extensive dataset on payment transactions between foreign importers and Swedish exporting firms. It is the first paper to examine currency invoicing at such a disaggregated level. The main findings are that high exchange rate volatility reduces the likelihood of using the importers currency while high GDP and GDP per capita in the importing country increases the likelihood. A large market share of a third country increases the likelihood of using the third country's currency. A further finding is a decreased use of Swedish krona and a rise in the use of the euro as a vehicle currency. State Dependent Pricing, Invoicing Currency and Exchange Rate Pass-Through, written jointly with Martin Flodén, analyzes exchange rate pass-through in a dynamic model with menu costs. In the paper, we provide a link between the fixed and flexible price analyses by specifying a dynamic framework with exogenous choice of exporting currency, but with endogenous pricing decisions. We consider the pricing strategies of firms that produce in a home country, sell on a foreign market, and can change the price in response to exchange rate fluctuations, while being subject to menu costs. Our main finding is that when the exporter prefers to set price in the importer’s currency, the exporter also changes prices less frequently than if price was set in the exporter’s home currency. The intuition is that in this setting, the optimal currency choice is the one that on average minimizes the difference between fixed and flexible price profits, and thereby the frequency of price updates. When the importer’s currency is preferred it leads to limited pass-through and a low correlation between exchange rate movements and import prices. The third paper, Demand and Distance: Evidence of Cross Border Shopping , written jointly with Marcus Asplund and Richard Friberg, uses data from 287 Swedish municipalities to estimate how responsive alcohol sales are to foreign prices, and relate the sensitivity to the location's distance to the border. Typical results suggest that the elasticity with respect to the foreign price is around 0.4 in the border region; moving 200 (400) kilometers inland reduces it to 0.2 (0.1).  For example, a 10 percent reduction in the Danish price of spirits causes a fall in per capita sales of roughly 4 percent at the border (Malmö). This large cross price elasticity is almost half the own price elasticity. The effect diminishes gradually as one moves further from the border, but fall in sales is estimated to drop below 1 percent only at 460 kilometer from the border. Not until we reach 1000 kilometers can we reject that the effect is zero. Common Currencies and Equity Prices: Evidence from a Political Event, uses a political event, the Swedish referendum on whether or not to join the European Monetary Union (EMU), as a natural experiment to examine the relationship between common currencies and the market value of exporting firms. If Sweden would have voted to join the EMU, exchange rate uncertainty as well as transaction costs would have been greatly reduced for many exporting companies. Prior to the referendum, these potential gains (adjusted for the probability of joining) should have been included in equity prices. The day after the referendum that probability of was zero and one would expect a decline in equity prices of exporting firms. We find evidence of statistically significant negative abnormal returns on the trading day after the election for only two out of fifteen examined industry indices. The small effects found in this study are in line with earlier research that finds a weak relationship between exchange rates and equity prices. The fifth paper, When is a Lower Exchange Rate Pass-Through Associated with Greater Exchange Rate Exposure?, written jointly with Martin Flodén and Witness Simbanegavi, we study the relationship between exchange rate pass-through and exchange rate exposure (the relation between profits and exchange rates) under flexible prices. We introduce a convex cost function and study the effects of changing the elasticity of costs with respect to output. We do this both in a model of monopolistic competition as well as in the oligopoly models used by Bodnar et al (2002). We find that increasing the convexity of costs reduces both exchange rate pass-through and exposure, both under monopolistic competition and in duopoly settings. The conclusion is thus that if industries differ mainly on the supply side, this would imply a positive correlation between pass-through and exposure. However, our extension does not affect the result in Bodnar et al. that exchange rate pass-through and exposure should be negatively correlated across industries if industries differ mainly on the demand side, more specifically in the substitutability between domestically produced and imported goods. / <p>Diss. (sammanfattning) Stockholm : Handelshögskolan, 2006, S. 3-12: sammanfattning, s. 15-120: 5 uppsatser</p>