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Thread: International Trade, Finance, Investing

  1. #11
    Diamond Member Blurock's Avatar
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    There was this business banker that advised his client to take forward for the next 12 months to hedge his import risk. The client ended up with a R2million forex loss for that year.

    To make matters worse, this guy used the same client as an example of how not to run your business in training interventions. The example quoted losses, being under capitalised and bad planning. Fortunately the same client received better advice and managed to turn the loss into a R1,8mil profit the next year.
    Excellence is not a skill; its an attitude...

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    Miro Bagrov (21-Jan-12)

  3. #12
    Bronze Member Miro Bagrov's Avatar
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    I agree that the rand devalues rapidly. Especially around election time.

    @ bluerock Indeed. Good for him. He should use that banker as an example in his seminars of bankers who don't know anything but want to give advice...

    Hedging accounts payable with a forward is one option. The question is, will the rand appreciate or depreciate.

    I predicted the rand will weaken and gave a brief reason here on my web-page:

    http://miroinvest.byethost22.com/index.php?news&nid=5

    I was right. Since the rand depreciated, I would hedge my accounts payable with a 12-month forward to make my payments smaller. However, if my forecast showed me otherwise I would leave my position unhedged, or use a different type of hedge.


    In any case... Who is interested in importing cars?
    Last edited by Miro Bagrov; 21-Jan-12 at 02:30 PM.

  4. #13
    Diamond Member Blurock's Avatar
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    Hedging forward for 12 months may be as risky as not hedging at all.

    A quick (non-scientific) survey at the Durban Exporters club some years ago, revealed that members that hedged or not arrived more or less the same result over a 12 month period. Timing is obviously important and one has to be able to read the markets to some extent, but how far can you read into the future?
    Excellence is not a skill; its an attitude...

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    Miro Bagrov (23-Jan-12)

  6. #14
    Bronze Member Miro Bagrov's Avatar
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    I agree - a long term hedge can kill you. However, as far as I can tell, most people hedge.

    Let's look at a salary.
    What is a salary?
    You produce something your boss sells 200 per hour and you get paid 30 per hour.
    That's like a hedge, and most people prefer to earn a sure 30 per hour instead of 200 per hour because they view their boss's work as risky.
    So who wins in the long term? The business owner (unhedged, variable earnings, market related) or the salary earner (hedged, fixed rate, taking a 60 years forward)

  7. #15
    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by Miro Bagrov View Post
    Let's look at a salary.
    What is a salary?
    You produce something your boss sells 200 per hour and you get paid 30 per hour.
    That's like a hedge, and most people prefer to earn a sure 30 per hour instead of 200 per hour because they view their boss's work as risky.
    Erm - except the boss might be paying for 8 hours and only selling four... or two... or only one every now and then.

    and that 200 has to cover 3 people's hours at 30 each...

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