The role of option contracts in hedging exchange rate and interest rate variations on fuel imports in Mozambique

Abstract

Options contract, the right to buy or sell a good (commodity or financial asset) for a fixed price at a future date is traded. Whoever acquires the right must pay a premium to the seller just like in an insurance agreement. The option contract can have three functions: The Protection function, (Hedge), aimed at protecting risks against falling market prices; The Speculation function, aimed at taking advantage of a certain market moment; The Arbitrage function, aimed at when an atypical market behavior is observed that can make the investor profit without incurring risks. This research aimed to study the role of option contracts in hedging exchange rate and interest rate variation in fuel import in Mozambique. For data collection, the interview technique was used with 05 participants, including managers from IMOPETRO, MIREME, Gasoline companies and clients in the cities of Maputo, Beira, Quelimane, Nampula and Pemba. It was the conclusion of this research that fiscal and administrative burdens are behind the constant rise of liquid fuel prices in the country. As an example, if the government removed the excess of VAT and taxes throughout the import chain the price per litre of gasoline to the final consumer would be 63.3 Mt/litre and 56.5 Mt/litre of diesel.