MOVING FROM UNCERTAINTY TO PREDICTABILITY - COMMODITY RISK MANAGEMENT STRATEGIES THROUGH COMMODITY SWAP“
Author: Kalina Yankova (University of National and World Economy)
Keywords: commodity risk, hedging, commodity swap
The unpredictability of some main economic indicators such as inflation, interest rates and supply chain disruptions are having a serious impact on the returns that companies are making on their core business activities and their willingness to enter into new investment projects. The effects of the COVID pandemic and the current political and geo-political environment bring a great deal of uncertainty to the operations of Bulgarian companies that trade, produce or buy commodities on stock markets. The stock market commodity prices are taken as a benchmark for the market. The high volatility of commodities has an impact on economic activity, the duration of the contracts and the predictability of profits, and accordingly makes commodity hedging an increasingly preferred financial operation. This article aims to present the effect of using commodity swaps to hedge the prices of commodities traded on stock markets in order to make firms' cash flows more predictable. This instrument is chosen to be investigated because in Bulgaria several banks offer it and it is available to firms.
