Hedging in the financial risk management of a transnational corporation in the mining industry

Abstract

The high changeability in the market prices of natural resources, and their high production cost, meant that the transnational companies which exploited and processed them generally use different secured means against the associated financial risk. This risk consists of commodity price risk, exchange rate risk, interest risk, credit risk, liquidity risk and capital risk. The first three risks are called market risks, and they are most often secured with the help of hedge and non-hedge instruments and a natural hedge. Attitudes to them were based on their effectiveness and costs, and they were substantially diverse among the individual corporations of the mining industry, which influenced the extent of their compliance. There was a general tendency that in periods of a bad economic situation and low market prices, the use of hedging and how much it was used were significantly greater than in periods of a boom in the market.