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Top1. Introduction
This paper outlines a proactive exchange rate risk management mechanism, by using the ‘Delta Normal’ approach elements. The mechanism is proposed to be explored from the main participants of national foreign currencies market. Also, the various agricultural exporters operating in Albania are included, in correspondence of business needs (expressed in transactions number and volume). According to the statistics of Agriculture and Rural Development Ministry of 2018 agricultural exports are increased by 25% compared with the previous year. This increase is due to an expansion of export even in Middle East and Northern Africa besides the ‘agro-traffic’ in European Union.
This approach has properly oriented the national policies toward the implementation of grant schemes for farmers, focused on agro exports. This orientation was undertaken in interaction with national strategic development plan, in compliance with governmental established milestones related to 2015-2020 period (National Strategic Rural development plan). Correspondingly, these businesses can be considered as main promoters of the labour market maturation. We estimate they foster the social cohesion and rural development with special regard to agriculture and forestall exporting activities. For this purpose the national strategic plan clusters them into various distinctive categories such as: export products of comparative advantage, increased international demand products, import substitution products that can be exported, commodities that are produced upon request for export and in potential export commodities that need to be tested.
Under these circumstances the market reality implies to consider two critical elements:
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An adequate product development process together with efficient trade and delivery practices,
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A relevant development of internal financial policies in order to meet the agro exporters exigencies; meaning here the risk management toward a sustainable growth.
Meanwhile a special attention goes to exchange risk management practices. On the one hand, it can be outlined that Albanian agro exporters operate in a dynamic currency market. The volatility of exchange rates of local currency vs foreign currencies might put them in a difficult positon given that they do not implement any risk management practices. On the second hand, the economic situation of the country plays a negative role towards choosing a long term risk management policy.
The fact that Albanian agro exporters operate using different international currencies exposes them to a continuous currency exchange rates risk. Albanian agro exporters report open positions mainly in: Euro (EUR), United States Dollar (USD), Great Britain Pound (GDB), Swiss franc (CHF), Canadian Dollar (CAD) and Australian Dollar (AUD). Thus, the risk management policies are a necessity.
Therefore, considering the above circumstances, the exchange rate risk management model proposed in this paper consists in overall currency portfolios Value at Risk (VaR) estimation in domestic currency- Albanian Lek (ALL) in a short time period of one day.
Value at Risk (VaR) estimation becomes a very interesting and important instrument especially when apart from the usual factors influencing exchange rates, the de-euroization process continuously devaluates the common currency. This plays an important role considering that Euro is the main currency used in the country. Similarly, a volatile behaviour is observed even for the other foreign currencies exchange rates.
In this context, during 2018 it should be highlighted that agro exporter’s portfolios currencies demonstrated a remarkable volatility referring to exchange rate fluctuations versus the domestic currency (e.g. USD (13%), AUD (12%), CHF (10.5%), CAD (9.4%), GBP (8.6%) and EUR (3%)). Euro maintained a persistent downward trend in terms of domestic currency counter value.