The role of swap contracts in hedging foreign exchange risk on used car imports from Japan to Mozambique.

Abstract

Swap contract negotiates the exchange of profitability between two goods (commodities or financial assets). A Swap contract can be defined as an agreement between two parties, who establish the exchange of cash flow based on the comparison of profitability between two assets. For example: Swap of gold x prefixed rate. If at contract maturity, gold valuation is lower than the prefixed rate negotiated between the parties, the difference will be received by the party that bought the prefixed rate and sold gold. If the profitability of gold is higher than the prefixed rate, the party that bought gold and sold prefixed rate will receive the difference. This research aimed to study the role of SWAP contracts in hedging exchange rate variation risk in importing used cars from Japan. For data collection, the questionnaire technique was used with 65 used car exporting agents and private exporters in the cities of Maputo, Matola, Xai-Xai and Beira. Binary logistic regression was carried out and it was concluded that there is a significant relationship between the financial crisis and the exchange rate variation and also that the exchange rate variation was due to the lack of SWAP contract coverage. Thus, all the null hypotheses are above 0.05 of Sig, which validates the alternative hypotheses.