The formula for successful hedging in CEE

Local banks have more expertise and knowledge of local regulations, customs and practices - this helps companies to navigate the complex and volatile environment of CEE countries. Corporate customers of the RBI Group also benefit from the fact, that they have a domestic business partner, which reduces both the transaction costs and potential legal risks of cross-border transactions. Through our local subsidiaries in the CEE region, we can leverage our network and presence to offer our clients more effective and efficient hedging solutions. 

There is no general hedging strategy that works for every client in every situation. But what ingredients are needed for a successful hedging strategy?          

• A clear understanding of the risk profile, including the sources, magnitude and duration of potential risks.         
• A clearly defined hedging policy and strategy that is in line with the company's objectives, risk appetite and budget constraints.      
• A selection of hedging instruments and tools that correspond to the characteristics and dynamics of the underlying risks.  
• Regular monitoring and evaluation of hedging performance using suitable key figures and clear targets.
• A reliable and experienced partner for the implementation of a hedging strategy, offering access to local expertise, market liquidity and innovative solutions in the CEE region. 

Companies are exposed to various risks arising from fluctuations in market prices, e.g. exchange rates, interest rates and commodity prices. To manage these risks, companies can use various financial instruments to hedge their exposure and reduce the impact of unfavorable market movements.

The available instruments include, among others:

• Forward contracts: These are agreements between two parties to buy or sell a certain amount of an underlying asset at a predetermined price and date in the future. Forward contracts allow companies to secure a favorable exchange rate or interest rate and eliminate the uncertainty of future fluctuations.
• Option contracts: These are contracts that give the buyer the right, but not the obligation, to buy or sell an underlying asset at a specified price and date. Options contracts can help companies hedge against downside risks while retaining the potential for upside gains. However, they also require the payment of a premium in advance and can
  expire worthless if they are not exercised.
• Swaps: These are agreements between two parties to exchange cash flows based on different reference rates or indices. Swap contracts can help companies to hedge against interest rate, currency or commodity risks by exchanging their fixed or variable payments for those of another party. 

There are several factors to consider when deciding which tool is appropriate in the situation. Different tools may be better suited to hedging different types of risks, such as specific transaction risks or more general economic risks. The level of risk exposure can also affect the choice of tool, as some tools offer more (or less) flexibility than others.

Companies need to weigh up the expected costs and benefits of hedging, e.g. transaction costs, premiums, margins, opportunity costs, tax implications, accounting treatment and impact on cash flow and profit. They also need to evaluate the trade-off between risk mitigation and return enhancement as well as the potential for over- or under-hedging.

Anyone wishing to hedge their risk must assess the current and expected market conditions, such as volatility, liquidity and correlation, and their potential impact on the performance and availability of hedging instruments.
Access to the relevant markets and instruments and the expertise available there, as well as regulatory and legal requirements, must also be taken into account.

One thing is clear: these challenges are easier to overcome with a strong partner at your side.

RBI is the best partner for managing risks with hedging strategies in the CEE region for several reasons.

With our strong presence and expertise in the CEE markets, with subsidiaries in 12 countries and access to the necessary hedging instruments, we can offer tailor-made solutions - customized for each client and adapted to local market conditions, regulations and practices.

Our dedicated team of capital market experts helps to identify risk and develop optimal hedging strategies. RBI also offers training videos to help companies develop risk management skills and awareness.

RBI has a broad and innovative portfolio of hedging instruments and services, ranging from traditional forward transactions, swaps and options to more complex structures such as cross-currency swaps, barrier options and structured products.

This makes RBI the best partner for risk management with hedging strategies in CEE, as it offers a unique combination of market presence, expertise, innovation and customer focus that sets it apart from other banks and competitors.