RISK MANAGEMENT ON AGRICULTURAL MARKET: THE CASE OF ROMANIA

In the present economic environment, the currency fluctuations, commodities prices variations and interest rates can affect performance and business stability and in order to protect against such risk, entities can opt for hedging. The purpose of the paper is to analyze if a Romanian grains producer can effectively hedge his or her exposure by trading futures contracts on the Euronext Paris exchange. However, the basis risk is increased because there are differences in quality and delivery place between the two commodities and an analysis of the hedging strategy is required. It is shown that by hedging a significant portion of the risk can be mitigated, especially if the hedging is done for longer tenor, but the hedging efficiency is smaller than the 80% level required by the IFRS rule for a transaction to qualify for accounting for hedging.