Hedging and De-Hedge Strategy Analysis for Optimal Risk Management in Banking

Abstract

Hedging is a financial instrument that uses a risk management approach to neutralize systematic risk against changes in prices or cash flows: individuals and businesses. One alternative that can be done to minimize this risk of banking is hedging. [1]. De-hedge means removing an existing position that serves as a hedge against the main position in the market. This study analyzes hedging strategies to achieve optimal risk management in banking companies. The object of the study is the banking industry, both conventional and sharia, listed on the IDX with an observation period of 2019-2023. The targeted outputs are scientific publications and national journals. The results of the study are Hedging strategies: Forward Contract, Futures Contract, and Money Market. Hedging strategy implementation techniques are Arbitrage, Diversification, Average down, Cash closing. Steps in how hedging works: the development of commodity prices in the physical market and futures market is studied and calculated, calculation of operating costs including storage costs, insurance costs, and interest expenses, fundamental/technical market analysis to see price movements, calculating physical and futures markets studying other sources of information so that the losses incurred are not too large, liquidation is carried out. To mitigate the risk of financial asset movements such as exchange rates, avoid the risk of loss, reduce the influence of foreign exchange rate fluctuations, and stabilize the overall financial situation, hedging and de-hedging are optional solution to optimizing risk management for banking.