The Prague Post
http://www.aaaradiotaxi.cz/index.php?xSET=lang&xLANG=2
July 7th, 2008
Endowment Fund     Book of Lists ONLINE      Reservations      Classifieds    Subscriptions
Prague accommodation
Prague Art & Antiques Prague Art Prague Antiques

Home » Archives » Business

Utility defends hedging against crown's rise

ČEZ's impact on currency exaggerated

By Michael Heitmann
Staff Writer, The Prague Post
April 23rd, 2008 issue

Earlier this month, reports surfaced that the state-controlled energy giant, ČEZ, had contributed significantly to the precipitous rise of the crown by converting billions of euros to crowns to hedge its currency risks.
ČEZ is not looking to make money off the crown; it is just trying to protect itself against a general trend, said ČEZ spokeswoman Eva Nováková. The company receives many of its payments in euros.
“Every company whose financial results are dependent on the exchange rate of the crown against the euro insures itself against exchange rate fluctuations,” she said.
Nováková said she could not comment on specific transactions because of the ongoing nature of the operation.
“No single market participant is able to reverse the general macroeconomic trend,” she added. “ČEZ does not act as a market player betting on the exchange rate, but as a market participant like every other exporter in the Czech Republic.”
A report on ČEZ’s hedging first appeared earlier this month in E15, which said the company had spent more than 3 billion euros in the past nine months to buy in excess of 70 billion Kč, at an average rate of 27 Kč per euro.
This hedging exerted considerable upward pressure on the currency, since the total average trading volume reaches only about 2 billion Kč a week, the newspaper claimed.
Vojtěch Benda, a senior economist with ING Wholesale Banking, disagreed with the paper’s assessment.
“The extent of ČEZ’s influence on the exchange rate has been exaggerated in media reports,” he said.
Benda attributed the crown’s strengthening to worldwide financial turbulence.
“At a time of uncertainty over the development of world markets, the crown remains a relatively calm and secure haven,” he said.
In addition, the economy is strong and foreign trade is doing fine, and the screws have not yet been tightened on foreign investment, he added.
Still, the public and media are jittery over the crown’s continuous stride uphill, and any activity on the currency exchange markets is coming under increasing scrutiny.
For example, a single transaction was all it took to spark a sudden spike in the crown’s value during the night of April 14. An anonymous Australian investment fund bought crowns worth one million euros at the rate of 23 Kč per euro, said market insiders.
That shot the exchange rate to 23 Kč against the euro for the first time ever, if only for a brief time. The exchange rate quickly returned to its more traditional value of 25 Kč per euro.
To help corral the crown, the Czech National Bank came to an agreement with the Finance Ministry April 9 on a deal to “limit the unwanted influence of public-sector operations on the currency exchanges and on the macroeconomic stability of the Czech Republic,” according to a ministry release.
The timing is coincidental, but the message is clear.
“What makes the Czech National Bank nervous is not the strengthening of the crown itself, but that the crown fails to behave completely in line with the prognosis,” Benda said.
Will the crown break with the previous trend of consistent and balanced appreciation, or is this only a temporary deviation? These are some of the questions raised by recent market activities, Benda said.

Michael Heitmann can be reached at mheitmann@praguepost.com


Other articles in Business (23/04/2008):

Browse the Current Issue

If you enjoyed this article, why don't you subscribe to the print version!
We accept secure online transactions provided by PayPal and Moneybookers

Be the first to add a comment!


Full Name: *
City: *
E-mail: **
This comment can be published in the print version of The Prague Post
Enter the text on the right:
 visual captcha
Comment: *
* Required field. In order to be approved for display, comments must have a first and last name and a city.
** E-mails are required and will only be used for internal purposes.

Most visited in Book of Lists

Hotel booking
The Prague Post Online contains a selection of articles that have been printed in
The Prague Post, a weekly newspaper published in the Czech Republic.
To subscribe to the print paper, click here.
Unauthorized reproduction is strictly prohibited.