Hedging a hryvnia exposure

Any company operating in Ukraine with foreign currency costs or debt faces the same question: what happens to the business if the hryvnia moves twenty per cent.

Why the standard answer is hard here

The textbook response is a forward contract. In Ukraine the forward market is thin, tenors are short, pricing is expensive and during periods of currency control the instruments may not be available at all.

A hedge you cannot roll over is not a hedge; it is a deferral.

What companies actually do

Natural hedging, which is the most robust approach available: match the currency of your revenue to the currency of your costs and debt. An exporter earning in euros and borrowing in euros has no exposure. The same firm borrowing in hryvnia to buy equipment priced in euros has created one deliberately.

Pricing clauses: contracts denominated in or indexed to a foreign currency. Legal, common, and it transfers the risk to your customer rather than removing it — which works until the customer cannot pay, at which point you have converted currency risk into credit risk.

Balance sheet management: holding working capital in the currency you will need it in, and not accumulating hryvnia balances you do not require.

The mistake to avoid

Assuming stability because the rate has been stable. Ukraine has had long stable periods followed by sharp adjustments, and the stable periods are precisely when firms stop hedging.

The practical rule

Structure the business so it survives a large move rather than trying to predict one. Prediction is unavailable; structure is a decision you control.

I live this problem every month, and I know the standard answer does not work here: there is no deep forward market, and what exists costs close to the risk itself. Our solution is commercial rather than financial — write the contract in euros and put the currency clause in from the start. The mistake to avoid is treating carrying the exposure as a deliberate decision: most companies are simply postponing it.