Transaction Exposure Hedging Instruments and their Accounting in the Croatian Shipbuilding Industry

14 Pages Posted: 22 Mar 2013

See all articles by Josipa Mrša

Josipa Mrša

University of Rijeka - Faculty of Economics

Davor Mance

University of Rijeka

Dara Ljubić

University of Mostar - Faculty of Economics

Date Written: March 22, 2013

Abstract

The paper deals with the transaction exposure of the Croatian shipbuilding which has the highest currency risks, the highest currency exposures, and the highest losses incurred by such exposures among all Croatian industries. The losses are mostly due to the non existent hedging practice of the shipyards against. The paper identifies the currency exposures and enumerates various possible management tools. The exposure avoidance is explained through derivative and non-derivative instruments. Financial derivatives markets do not exist in Croatia. The introduction of hedging instruments in the Croatian economy isn’t the only problem; it is also an accounting challenge due to the rather straightforward recognition, measurement, and reporting techniques resulting out of the International Accounting Standards (IAS). The paper explains the implementation of the IAS on the financial instruments used. The proposed solutions include the non-hedging techniques; financial derivatives such as forwards, futures, options, swaps and other; or natural hedges with non-derivative financial instruments as for example offsetting borrowing/lending agreements in the settlement currency. The non-hedging techniques needn’t be a second best option. The most advanced financial derivatives may indeed be more expensive than the natural hedging alternatives based on non-derivative financial instruments.

Keywords: currency risk, transaction, translation and economic exposure, hedging accounting, exposure netting, exposure avoidance, natural hedging

Suggested Citation

Mrša, Josipa and Mance, Davor and Ljubić, Dara, Transaction Exposure Hedging Instruments and their Accounting in the Croatian Shipbuilding Industry (March 22, 2013). Available at SSRN: https://ssrn.com/abstract=2237949 or http://dx.doi.org/10.2139/ssrn.2237949

Josipa Mrša

University of Rijeka - Faculty of Economics ( email )

Ivana Filipovića 4
Rijeka, 51000
Croatia

Davor Mance (Contact Author)

University of Rijeka ( email )

Hahlic 6
Rijeka, 51000
Croatia

Dara Ljubić

University of Mostar - Faculty of Economics ( email )

Bosnia and Herzegovina

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