DISCLOSURE OF FOREIGN CURRENCY RISK AND CORRESPONDING MITIGATING TOOLS BY THE METAL PRODUCING COMPANIES’ IN THEIR ANNUAL REPORTS FOR 2014
DISCLOSURE OF FOREIGN CURRENCY RISK AND CORRESPONDING MITIGATING TOOLS BY THE METAL PRODUCING COMPANIES’ IN THEIR ANNUAL REPORTS FOR 2014

Summary/Abstract: This paper reviews information on foreign exchange risk factors and the corresponding risk reducing techniques, disclosed by 32 largest global steel producing companies in their annual reports for 2014. According to the materiality principle, it is a natural assumption that annual reports disclose the most significant risk factors. Extensive research resulted in identifying 17 risk factors with total frequency of 61. Eleven of these risk factors relate to the transaction risk, with total frequency of 49, which represents 80.3% of risk factors in total. The most significant risk factor refers to purchases of important inputs that are denominated in foreign currencies, with a frequency of 21, which represents 34.4% of risk factors in total. These risk factors are the ones that companies recognize as ones with the most significant impact on their assets, operating costs, earnings and future cash flows, financial result, financial condition, business and future prospects. The analysis of hedging tools used by the companies, reveals that most companies hedge their risk by using financial derivatives. Having in mind that mining is the long-term business, we can conclude that companies mitigate their short and medium-term transaction risk by financial derivatives. Companies do not seem to be concerned with mitigating the long-term translation and economic risks.

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