Hedging and risk mitigation

The company, which imports, expects the delivery of cars from Germany in the amount of 500,000 euros during the quarter. The company only has dollars on its account and it will have to convert them into euros in its bank. Based on the calculation of costs and future profits, the company is satisfied with the current euro exchange rate. But the importer now does not want to buy euros for the entire amount of the contract and thereby conserve his funds, but does not want to lose on a possible change in the exchange rate.

Therefore, with the help of our company, he decides to reduce (hedge) his risks from the rise in the price of the euro. In this case, our company buys EUR.USD (buy euros, sell dollars) in the amount of 500,000 euros.

The company expects several deliveries of raw materials abroad during the quarter with payment of 1,000,000 euros. However, the exporting company prefers to keep its funds in dollars, so it will have to convert the received euros into dollars. If the exporting company is currently satisfied with the exchange rate of the euro against the dollar, and the exporter himself is afraid of a change in the exchange rate in the future, which will lead to losses during the delivery of the goods due to a change in the exchange rate itself, then our company opens sales at EUR.USD (sell euros and buy dollars) at once for the entire amount of the contract, and then close it in parts, depending on the amount of each batch of goods.

Farmers have grown wheat and want stability and confidence in the future. But, all farmers, and their clients, depend on the market price of wheat, which they cannot predict. The inability to predict with any probability the financial future of the economy and business leads you to insurance (hedging).
If the harvest is good, the price of wheat at harvest will fall; and if the harvest is bad, the market price of wheat will rise. The farmer is not satisfied with such ignorance.
So, no matter what the outcome will be in the future, during the wheat harvest, the farmer and the client will complete the transaction at a pre-agreed price.

There are 3 options at harvest time:

 The market price is higher than the agreed price: the farmer is not happy, but is obliged to sell his wheat to the client, and the client is glad that he buys rice cheaper than elsewhere

  The market price for wheat is lower than the previously agreed price: the farmer is happy that he sells at a higher price, and the client could buy at the market, but gave his word that he would buy from the farmer and pay more.

  The market price does not differ from the agreed one: all with their own.

Our company will remove the risks of price changes and keep the manufacturer's products at the price he needs.

The investor has Google shares in the portfolio, but is wary of a decline in the price of this contract, so he opens a short position in the futures or CFDs on Google or buys a put option, and thus insures against a fall in the price of this contract.

The investor has a portfolio of shares and in order to insure against a fall in its value in case of unfavorable developments in the world markets, he opens he sells futures on the S&P500 index, depending on the beta coefficient, or buys a put option on the SP500 index.

Our company provides services for financial companies, funds, banks, as well as for individuals in the hedging and risk mitigation industry. We hedge any financial instrument.