'Artificial hedging through derivatives would shock forex market'

Company matches foreign-currency inflows and outflows to manage exchange-rate exposure

Samsung Town in Seocho-gu, Seoul, on Thursday, when Samsung Electronics announced its record quarterly earnings. [Yonhap]
Samsung Town in Seocho-gu, Seoul, on Thursday, when Samsung Electronics announced its record quarterly earnings. [Yonhap]

Samsung Electronics said Thursday it is relying on a natural hedging strategy to limit the earnings impact of growing volatility in the won-dollar exchange rate.

The approach centers on matching the currencies and timing of foreign-currency inflows from exports with outflows for raw-material purchases, keeping currency exposure as low as possible.

Park Soon-cheol, Samsung Electronics' chief financial officer and executive vice president, said at the company's third-quarter earnings conference call Thursday that Samsung is closely monitoring how exchange-rate movements affect operating results and financial conditions as volatility in the dollar and other major currencies increases.

Park said fully hedging the hundreds of trillions of won in dollar-denominated bonds Samsung holds domestically through derivatives such as forward exchange contracts would not only shock the domestic foreign-exchange market but also generate enormous opportunity costs from transaction fees alone, reaffirming the company's commitment to natural hedging.

"Instead of costly artificial hedging through derivatives, we are focused on structurally minimizing exchange-rate volatility by building a natural hedging framework across our entire global value chain," Park said.

Samsung said it suppresses currency position exposure — the gap between foreign-currency-denominated assets and liabilities — as much as possible by matching inflow and outflow currencies and aligning asset and liability sizes on a currency-by-currency basis.

"For any currency positions that do arise, we manage them by selling dollars early and taking other steps to minimize the period of currency exposure," Park said.

Park added that Samsung will continue to manage currency risk systematically under this hedging strategy to minimize uncertainty in operating results caused by exchange-rate fluctuations.


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