Not yet a popular option: Only big exporters use dollar hedging facility

Although the dollar hedging facility has been strongly recommended to exporters to protect themselves from being heavily affected by the strengthening peso, only a few Cebuano exporters have taken advantage of this mechanism.

According to Banco de Oro (BDO) executive vice president Gerard Lee B. Co, for BDO, which has a total of 30 branches all over the province, only those big and sophisticated exporters that entered into hedging, most small and medium exporters have not used this special facility.

One hedges the currency risk by contracting to sell foreign currency in the future, at the current exchange rate.

Contracts are typically for periods of up to one year for U.S. dollars.

Co said most exporters, especially the SMEs are still holding back to avail of hedging, probably most of them are not ready to pay the cost, and take the risk, if ever the U.S. dollar will regain its strength against the Philippine peso.

Financial analyst Wick Veloso advised exporters to take advantage of hedging as the peso value is expected to climb some more in the next few months.

Veloso strongly suggested that exporters big or small will have to learn more how to hedge adding that hedging is the only protection of exporters now a days.

“They [exporters] have to know how to hedge to protect themselves,” Veloso added.

Despite this recommendation, exporters believe that hedging alone can not solve the entire problem, although it tries to protect exporters from losing more money, if the peso continues to strengthen.

Cebu Furniture Industries Foundation Inc., (CFIF) president Michael Basubas said hedging only provides temporary relief for exporters, but it can not largely help companies from drowning, due to the upswing of peso value to the greenback.

“What we are asking is for the government to intervene and help us in this difficult time,” Basubas said.

Exporters in Cebu, has asked the Philippine government to provide a “Special Window” for foreign exchange in order to protect all exporters whether large or small.

However, Veloso maintains that now, that the peso is appreciating, exporters have to know how to protect their profits through hedging, rather than ask the government’s help for a specialized foreign exchange window which is unlikely to happen.

Hedging means reducing or controlling risk. This is done by taking a position in the futures market that is opposite to the one in the physical market with the objective of reducing or limiting risks associated with price changes.

It has a two-step process. A gain or loss in the cash position due to changes in price levels will be countered by changes in the value of a futures position. For instance, a wheat farmer can sell wheat futures to protect the value of his crop prior to harvest. If there is a fall in price, the loss in the cash market position will be countered by a gain in futures position.