Positive movement in the exchange market to absorb the effects of the global crisis

The return of foreign investment, the increase in dollar resources, and the launch of derivatives contracts

The Central Bank of Egypt announced that banks operating in the Egyptian market are promoting financial derivatives operations, “hedging contracts” in the exchange market, as part of a package of measures taken by the Central Bank to achieve balance in the currency market with the start of the return of foreign investment flows, which the Central Bank estimated at $925 million, along with An increase in the foreign exchange earnings of banks through several means, including local sources, by waiving the dollar by citizens in addition to the remittances of workers abroad and the revenues of the tourism sector, which was reflected in the increase in trading rates in the interbank market (a platform between banks for trading foreign currency) by about 20 times the daily rate in the last period.

These effective measures resulted in securing the foreign currency necessary for the release of goods at ports and covering more than $2 billion in requests for Egyptian importers, which will allow an increase in the supply of goods in the Egyptian market and push prices and inflation rates to a gradual decline.

In support of these measures, the Russian Central Bank announced at the end of last week that the Egyptian pound would be included in the basket of currencies of Russian exchange rates as a good step to ease pressure on demand for the US dollar by allowing the completion of commercial transactions between Egypt and Russia, estimated at about $4.7 billion in Egyptian pounds and the ruble. Russian official.

Dr. Fakhry El-Feki, Professor of Economics at the Faculty of Economics and Political Sciences and Chairman of the Plan and Budget Committee in the House of Representatives, considered that the recent measures taken by the Central Bank of Egypt enhance the strength of the exchange market and confirm the flexibility of the exchange rate, praising the statement issued by the Central Bank to clarify the facts regarding the fluctuation of the currency price, which occurred since More than ten days and his return to stability.

He said that the flexibility of the exchange rate helps the currency absorb shocks and move according to supply and demand to meet market needs.

He added that the measures taken led to the decline of the black market, and the reduction of the gap between the official market and the parallel market by no more than 2-3 pounds, which is important to avoid leakage of dollar resources. He stressed that these measures help to develop foreign exchange reserves, which cover 4-5 months of imports, which exceeds the volume required globally and achieves safety and stability.

Fakhry El-Fiqi pointed out that Egypt was able to restore indirect foreign investment and attracted investments of nearly one billion dollars in four days, which contributed to the release of goods at ports and increased exchange in the interbank market between banks. He said that the situation in the exchange market has begun to stabilize, which supports the confidence of foreign investors and boosts confidence in the Egyptian economy and enables it to absorb the effects of the current global crisis and its consequences on the local economy.

With regard to Russia’s inclusion of the Egyptian pound in its currency basket, he said that this measure will relieve pressure on demand for the dollar, as various transactions between Russia and Egypt will be carried out in pounds, which is a positive matter added to the package of measures followed by the government and the Central Bank of Egypt to overcome the effects of the global crisis.

Hany Aboul Fotouh, a banking expert, says that the measures taken recently by the government and the Central Bank support confidence in the exchange market and push for more confidence also by foreign investors and encourage attracting them again to enter the Egyptian market, which is reflected in the increase in foreign exchange flows.

He said that the fluctuation of the exchange rate, up and down, is evidence of flexibility and the difference in the price according to the inflows of foreign currency, which is expected to witness an increase during the coming period with the tendency to raise the interest rate, which increases the attractiveness of the Egyptian market and achieves high returns on indirect foreign investment.

In terms of financial derivatives that banks are scheduled to start dealing with, it is an agreement or contract that allows its parties to obtain the right or undertake to implement certain procedures related to the underlying asset. Derivatives usually provide opportunities to buy, sell, give away or acquire an asset.

In general, the primary purpose of a financial derivative is not to acquire the asset in question, but to “hedge” price changes or currency risk over time, or to make speculative profits according to the price changes of the asset.

Returns generated by derivatives depend on the performance of the underlying asset. This is the reason for the name of derivatives, where the returns generated from them are derived from the returns of another instrument

Dr. Medhat Nafie, a financial expert, says that according to what was announced by the Central Bank of Egypt, the Egyptian pound is in the process of entering into non-deliverable forward contracts with the dollar, which is what is known as Non Deliverable Forwards, as a hedge against exchange rate fluctuations. Futures are not typical and are not negotiable in the secondary market between parties unknown to each other. The forward contract is signed between two known parties and may be traded outside the booth of the stock exchange.

He added that the forward contract is derived from an asset such as a commodity, a precious metal, or a currency, and it is binding on both parties, and its issuance aims to avoid price fluctuations in relation to the underlying asset.

He added that currencies, in general, are subject to fluctuations in their value, such as fluctuations in commodity prices, so those dealing in them need to hedge against the risks of their volatility, as happens in oil futures contracts. He said that the Egyptian banking sector has great experience in dealing with derivatives and hedging contracts, as they have been used since past years, which will reduce any potential risks for this type of contracts and ensure the effectiveness of the mechanism for the contracting parties, the client and the bank, explaining that the disappearance of the parallel market was necessary to activate the mechanism of financial derivatives and hedging contracts. .

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