HEDGING IS THE WAY TO REDUCE THE EXCHANGE RATE RISK

Abstract

Companies in Indonesia like PT PLN may suffered losses caused by the exchange rate. One of the reasons the company suffers a loss may not sufficient to implement hedging for assets or liabilities in the form of foreign exchange. Thus, the purpose of this study is to describe the way of hedging to reduce exchange rate risk and avoid exchange rate losses for companies. This research uses qualitative method with descriptive approach to process data which have been collected from company financial report. Data obtained from field observation, documentation, and analysis of exchange rate movements of PT PLN from 2011-2016. The results will be compared with related theories of journals and books to formulate solutions. The results of this research explain that it is better for companies like PT PLN to implement hedging to reduce exchange rate risk that could harm companies and countries. Currently the reason PT PLN may not implement the hedging because assuming will reduce profits, even will increase the cost of expenditure. In fact, by implementing a hedge will reduce the exchange rate risk, although it will increase the cost of expenditure. The right solution to reduce exchange rate risk by implementing a hedge stated by Indonesia (Bank Indonesia Regulation). The Company may choose and use hedging instruments that it believes are compatible with transactions or assets and liabilities