Why do investors in Egypt play the hedging contracts against the fluctuations of the pound?

The futures market in Egyptian banks in Egyptian banks is suffering from a remarkable stagnation after three years since the central bank invited to activate and promote it, according to seven bankers who spoke to the “East”. Bankers believe that the lack of distribution of these contracts in Egypt is due to several factors, especially the plenty of dollar in the market today, which reduces the need to hedge against the exchange rate fluctuations, in addition to the high cost of futures compared to the immediate price, which causes customers to use it. The absence of an actual market for these contracts, due to the small number of banks that have sufficient experience in its implementation, is a hindrance to their distribution, as well as lack of awareness among clients about the mechanism of their work and its benefits. Since 2023, banks have been trying to promote financial derivatives in the exchange market, with the aim of providing an integrated financial service that allows their clients to hedge against the risks of varying exchange rates. The dollar futures are used worldwide as a tool to protect companies from the risks of varying exchange rates, and have previously been applied in Egypt, but work has been suspended after the discovery of wrong practices. In October 2022, the Central Bank of Egypt allowed banks to execute the Frids operations for companies of companies, provided it is used only to cover customer centers arising from commercial operations, such as documentary credits, collection documents, provider facilities, transfer of foreign investors’ profits, commodity and service. Mohamed Abdel -Al, a bank expert, believes during his conversation with Al -Sharq that the dollar term market should be developed by technical, technological and technical structures and qualified cadres, in addition to expanding the boundaries of internal transactions between Egyptian banks and correspondents of all currencies to cover the risks of the education in the future. According to Abdel -all, the cadres in the Treasury divisions in banks, some of which are not qualified to implement futures, need experience in implementation. Sahar al -Damati, a former Vice President of Banque Misr, agreed with Abdel -Al -Il -opens about the lack of qualified cadres in banks to implement futures and the absence of clients’ awareness of their importance and high cost of the client. The demand for future contracts has a poor demand for and after the dollar crisis, before and after the dollar crisis, according to the CEO of one of the private banks of the “East”, which explains that the banks could not activate the exchange rate of the exchange rate, as a result of the exasperation of the foreign exchange and the absence of a clear market for the exchange rate. The dollar. After liberation, clients prevented themselves from concluding futures for specific periods, due to the abundance of the dollar in the market, and their lack of desire to pay the commission as a result of the currency security at a specific price. In the same context, the head of one of the regional banks in Egypt indicated that the reluctance of these contracts is due to the major difference between the immediate price and the price of futures, as the dollar in futures is priced at 59 pounds, while the immediate price is less than 51 pounds, which make these contracts less attractive to investors. He explained to Al -Sharq that this difference is the result of the price mechanism that depends on the difference between the interest rate on the dollar, which is currently 4.5%, and the price of the return on the Egyptian pound, which reaches 27.25%. According to Mohamed Abdel -al, the cost of covering the dollar in futures for commercial operations is to finance documentary credits for a later period, high on the immediate market of the dollar, because the final price of the dollar in future contracts the cost of the interest rate teams between the pound and the dollar and the expected risk of the interest rate. Banks are not eligible to handle futures, the head of a private bank, to Al -Sharq, that the banking institutions dealing with futures in Egypt are very few, as the market does not have the sufficient number of banks that this service can provide effectively, and perhaps only a bank or two. Al -Damati emphasized that the implementation of futures contracts requires transactions between local banks and banks correspondence abroad. An official of the Treasury and international transactions in a bank explained to Al -Sharq that for many years the absence of these contracts has led to a shortage of banking cadres to handle it, making it difficult for many banks to conclude or provide an integrated service to their clients. Also read: Egypt banks offer savings with changing returns in expectation to reduce interest, for fear of both parties with the high price of futures for the dollar, the head of the banking sector in one of the private banks indicated that the high price of the dollar futures behind the decline in customer demand for their not. “If the dollar is taken from the price agreed upon in futures when the contract is executed, it will be a problem for the customer because it was bought at a high price. The dollar that lowered the customer loses the competitive advantage over its property. Dollar price is higher than agreed with the client, thus the fear of both parties and the bank.