Andrii Borenkov,
Head of Advisory in BDO in Ukraine
Potential investments in Ukrainian economy will involve currency exchange risk as significant part of business activity may be nominated in Ukrainian hryvna (UAH), which is not hard currency and is being converted to other currencies through USD.
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There are many factors which affect UAH exchange rate, but besides natural factors connected to international trade and investments, policy of Ukrainian National Bank (NBU) and its actions on internal foreign exchange (FX) market with own FX reserves make significant influence on exchange rate and its dynamics.
Due to low development level of Ukrainian financial market, there are practically no working financial hedging instruments over UAH fluctuation and most efficient instrument is natural hedge with increasing export share in revenue balancing FX influence on assets and liabilities.
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Ukrainian Hryvna tends to devaluate over time with several short revaluation periods, as several years before the full-scale russian invasion NBU decreased its role in UAH exchange rate determination allowing the market to define it (however still smoothing peaks). After full-scale invasion NBU switched to fixed official exchange rate policy while implementing additional restriction on international capital flows (including non-critical import and payments abroad). Such restrictions were implemented before, for example, during massive financial crisis of 2014-2016, so they can be treated as a part of currency exchange risk as well.
Due to significant amount of international aid NBU collected 11 years-high FX reserves keeping fixed official USD/UAH exchange rate, so in case the situation won’t become worse we can forecast gradual easing of current FX-related restrictions.
Despite the fact that this publication has been carefully prepared by the company's specialists, it can only be used to get a general idea of the subject discussed in it. It is not recommended to use the information presented in the publication as professional advice on a specific issue. Prior to making any decision or taking any action that may affect your finances or business, a qualified professional advisor should be consulted. Please, contact BDO in Ukraine for advice.