Author(s):

Abstract:
In today's uncertain times when the major European economics have to deal with the danger of bankruptcy, the risk management has become for financial managers a highly complicated issue, in which the crucial role plays the accepting of personal responsibility for each decision leading to the elimination of risk. Thus, it seems to be particularly important for corporate financial managers to identify the types and sources of potential risks that fundamentally affect their business activities. The historical development of risk is associated with uncertainty in a negative sense. Nevertheless, in the course of time, the authors have applied the concepts of chance or opportunity to express a positive sense of risk. The clarification of this terminological ambiguity is important for both research and practical applications. The elimination of risk can be achieved only by the proper understanding of the nature of risk. Currency risk is one of the risks that can be seen uncontrollable from the perspective of enterprises. However, one of the potential variants of financial management is to eliminate the currency risk arising from the volatility of exchange rates through the use of currency derivates. The objective of the paper is to examine the importance of individual steps within the entire process of currency hedging for export oriented companies in a small open economy, namely the Czech Republic. The purpose of the paper will be primarily achieved through the analysis of the development of the currency pair CZK/EUR in years 2000 to 2010. Time series regression analysis will be performed both for the exchange rate and for the volatility of exchange rate, and the future development will be predicted. The proposed study will use data from the Czech Statistical Office, the Czech National Bank and the Thomson Reuters database. Consequently, on the basis of a model enterprise, different exchange rate hedging strategies will be applied. Results from this approach should show whether it is beneficial to hedge in given conditions. In case of economic efficiency of hedging, it seems to be necessary to identify the financial managers' attitudes towards the exchange rate hedging, particularly the attitudes to risk in general, depending on whether the company is hedged or not, and the relation between managers' education and used hedging strategies. These primary data will be gained by the questionnaire survey realized among the industrial enterprises of the South Moravian Region. The data will be processed by standard methods of descriptive statistics and other mathematical statistical methods, such as the chi-square test. In conclusion, the recommendations for owners and financial managers concerning the comprehensive look at the currency risk elimination with the help of financial derivates will be developed. The paper summarizes the theoretical aspects necessary for the understanding of the issue and their application to the corporate sector in terms of a sma

Key words:
risk management, currency risk, exchange rate, hedging, currency derivatives

Date of abstract submission:
27.06.2012.

Number of visits:
471

Conference:
REDETE 2012

Applied paper from author