Friday, November 23, 2007 Hedging facilities fail to attract small, medium exporters in Cebu
AS the peso-dollar exchange remains volatile, many small and medium export companies have been discouraged from taking advantage of different hedging facilities offered by several banking institutions, an industry official said.
Former Cebu Furniture Industries Foundation (CFIF) president Michael Basubas said it is difficult for small and medium export companies to hedge as the foreign exchange market remains “very volatile.”
He said many exporters also do not have clear orders for the next few months from buyers.
Hedging is a strategy designed to minimize exposure to an unwanted business risk while still allowing the business to profit from an investment activity.
A currency hedging program refers to a side investment that is taken out specifically to reduce or cancel out the risk associated with exposure to certain currencies.
Some of the most common types of foreign currency hedging vehicles used in today’s financial markets include forward contracts, options and swaps.
While big export companies have taken the risks and invested in hedging facilities, Basubas said the option is not popular among small and medium exporters.
In hedging, the companies would have to sell their forward shipment to the banks in a fixed foreign exchange rate, he said.
So the problem lies in the uncertainty of the orders for shipment, he said.
“We don’t even know the value of our forward shipment, (so) we can’t determine the volume of dollars we have to hedge,” he said in an interview.
He said a middle-size export company, like furniture players, for example, could sell an average of $1 million to $600 million worth of orders for a year.
Now that the United States market, which accounts for the bulk of Philippine furniture exports, has softened, Basubas said most exporters cannot estimate the value of orders even for a short period of time.
In addition, he said small and medium players still do not see the benefits of hedging as compared to big export players.
“In Cebu, most exporters are not receptive of the hedging offers, although it protects losses from abrupt changes in the foreign exchange,” said Basubas.
Financial analysts have been strongly encouraging exporters to capitalize on hedging to avoid further losses due to the unpredictable foreign exchange rate in the country.
The strengthening of the peso against the US dollar has caused export goods from the country to become more expensive and, therefore, less competitive.
Financial expert Sergio Edeza earlier said that the continuous weakening of the US economy due to balance of trade deficit would bring about a weaker dollar currency in the future. (MMM)
