PL EN


2020 | 54 | 2 |
Article title

Cross-Currency Interest Rate Swap Application in the Long-Term Currency Risk Management

Content
Title variants
Languages of publication
EN
Abstracts
EN
Effective currency risk management using various derivatives is particularly important under increased market volatility. The risk is relatively higher for longer than shorter time frames. This study highlights the implementation of selected instruments for long-term hedging. It presents the application of cross-currency interest rate swap as a currency risk hedging tool used by Polish exporters, mainly manufacturers generating their revenues mostly abroad (in euro area), exposed to negative exchange rate fluctuations. The paper covers issues related to the pricing, market risk estimation and collateral required in the OTC market, as well as undertakes a sensitivity analysis in search for exchange rates at which margin call occurs. There is a comparative analysis and back test simulation conducted using market data from exchange and money markets. The study emphasized that the analyzed instrument meets the expectations in terms of hedging the company cash flows, as well as may generate additional benefits due to the still existing interest rate differential.
PL
Effective currency risk management using various derivatives is particularly important under increased market volatility. The risk is relatively higher for longer than shorter time frames. This study highlights the implementation of selected instruments for long-term hedging. It presents the application of cross-currency interest rate swap as a currency risk hedging tool used by Polish exporters, mainly manufacturers generating their revenues mostly abroad (in euro area), exposed to negative exchange rate fluctuations. The paper covers issues related to the pricing, market risk estimation and collateral required in the OTC market, as well as undertakes a sensitivity analysis in search for exchange rates at which margin call occurs. There is a comparative analysis and back test simulation conducted using market data from exchange and money markets. The study emphasized that the analyzed instrument meets the expectations in terms of hedging the company cash flows, as well as may generate additional benefits due to the still existing interest rate differential.
Year
Volume
54
Issue
2
Physical description
Dates
published
2020
online
2020-06-29
Contributors
References
  • Brzychczy, E. (2012). Proposal of using SWAPs by hard coal mining companies in Poland. Mineral Resources Management, 28(2). doi:10.2478/v10269-012-0016-0
  • Chernov, M., & Creal, D. (2018). International yield curves and currency puzzles. NBER Working Paper, 25206.
  • Engel, Ch., & Lee D. (2017). The uncovered interest parity puzzle, exchange rate forecasting and Taylor rules. NBER Working Paper, 24059.
  • Hassan, T., & Mano, R. (2018). Forward and spot exchange rates in a multi-currency world. NBER Working Paper, 20294.
  • Klimontowicz, M., & Pyka, A. (2018). Zabezpieczanie ryzyka stopy procentowej w kredytowaniu działalności przedsiębiorstw. Studia i Materiały. Wydział Zarządzania UW, 1(29). doi:10.7172/1733-9758.2018.27.5
  • Leszczyńska, E. (2007). Rynek kontraktów swap w Polsce. Warszawa: Narodowy Bank Polski.
  • Lustig, H., Stathopoulos, A., & Verdelhan, A. (2018). The term structure of currency carry trade risk premia. NBER Working Paper, 19623.
  • Malinowski, A. (2011). Zastosowanie kontraktów swap w Polsce. Zeszyty Naukowe Uniwersytetu Przyrodniczo-Humanistycznego w Siedlcach. Seria: Administracja i Zarządzanie, 88(15).
  • Polish National Bank. (2016). Turnover in the domestic Foreign Exchange and OTC Derivatives Markets in April 2016. Retrieved from www.nbp.pl
  • Śliwiński, P. (2017). Testowanie hipotezy niezabezpieczonego parytetu stóp procentowych na przykładzie kursów USD/PLN oraz EUR/PLN w latach 2006–2010. Acta Universitas Lodzensis, 2(328). doi:10.18778/0208-6018.328.14
  • Wybieralski, P. (2014). Transakcyjne ryzyko kursowe a cele działalności osłonowej przedsiębiorstw niefinansowych. Zeszyty Naukowe Uniwersytetu Szczecińskiego, 802. Finanse, Rynki Finansowe, Ubezpieczenia.
Document Type
Publication order reference
YADDA identifier
bwmeta1.element.ojs-doi-10_17951_h_2020_54_2_113-124
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