THE EXPOSURE OF CONSTRUCTION FIRMS IN SHKODRA REGION TO THE EXCHANGE RATE RISK AND ITS HEDGING

Abstract

The high scale of dependency of Albanian businesses with neighbor 
countries and broader, makes them face a high exchange rate risk. Most of 
them import the raw materials and very often set their prices in foreign 
currency like euro or US dollar in order to hedge from the exchange rate 
risk. Hedging from this risk is difficult due to many reasons where the most 
three important are: the nonfunctioning of Tirana stock exchange, the 
commercial banks still do not offer hedging instruments to be traded and 
used widely, and the lack of financial knowledge from our businesses’ 
representatives on hedging instruments.  
Construction is one of the industries that is most exposed to exchange rate 
risk. This is due to the large amounts of raw material importing, the large 
amount of capital involved in, etc.  
In this paper we aim to show to what extend the constructing firms 
operating in Shkodra region are exposed to exchange rate risk and what 
they do to hedge from it. We will also give some ways on how they can 
improve their hedging mechanisms. 
This paper ends with some recommendations on how these firms can hedge 
from this risk.