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That presumes they have some idea of the short-term forward volatility of the rubble, which no one does right now. Otherwise they have no idea what the surcharg

That presumes they have some idea of the short-term forward volatility of the rubble, which no one does right now. Otherwise they have no idea what the surcharge ought to be. Furthermore, setting up such things is not cost-free, and if the high-volatility situation is temporary (which is very likely) it could well be that it isn't worth the cost, complexity and risk.

martinko 12y ago
>Otherwise they have no idea what the surcharge ought to be. Nonsense. The surcharge is the difference between the spot rate and the futures rate with which they hedge. They can easily predict (to a reasonable degree) the volume they need to hedge by estimating their market.
acchow 12y ago
> That presumes they have some idea of the short-term forward volatility of the rubble, which no one does right now The derivatives market still exists and you can null out future FX risk by paying whatever the derivatives market is charging for it now and passing that cost onto consumers.
Kadin 12y ago
You base the surcharge on what the swap costs. The cost of the swap takes into account the market's idea of what the ruble is going to do vs. the dollar. Basically, you make the customer buy insurance against the ruble losing value against the dollar. It's like charging a subprime borrower PMI.
- achamayou 12y ago
  But you still need to find someone willing to sell you (enough of) the swaps in question. And that may not be easy.
CamperBob2 12y ago
That presumes they have some idea of the short-term forward volatility of the rubble My guess is that your typo isn't too far from the truth. Everything we've seen lately with regard to falling oil prices is geared towards attacking the Putin regime. Eventually the Russian people will find themselves living in a North Korean-style pariah state... or else they'll wake up and take drastic action to keep that from happening. Either way the medium-term outlook for the ruble is pretty much toast.
- happyscrappy 12y ago
  Or maybe Putin is popular enough to survive changing course in Ukraine before the economy is completely trashed. Also do you have a source that oil prices are being manipulated to punish Putin? Seems likely but I haven't seen anything.
  - semi-extrinsic 12y ago
    I've also seen it suggested that the oil price drop is a "stealth" sanction against Russia, but I don't follow the logic. Why do the Saudis want to sanction Russia? Unless one presumes some unspecified quid-pro-quo conspiracy between the US and the Saudis, I don't see it. I thrink driving the volatility up like this slows the investment rate in US shale oil significantly, and that's what the Saudis are doing.
    - leaveyou 12y ago
      Russia supports Bachar's regime. Bachar blocks Qatar's & Saudi oil/gas pipe from passing through Syria towards European market. Europe remains dependent on Russian gas(30%) and oil for another round. Saudis get angry and want to topple Bachar. Russia says no way. Saudis kick Russia in the groin economically by raising the oil production. Now it makes sense ? (lower oil price combined with other EU & US sanctions bring Russia on the brink of collapse: EU, US & Saudis high five furiously)
      - Steko 12y ago
        Nothing you said makes sense because the Saudis didn't increase production and at 12% of global supply do not have the capacity to change the price on the scale we're seeing without it being glad you obvious. The price is dropping because the Chinese and European economies are soft and becuase of increased supply from Libya in the short term along with the long term increases from the US, Russia, Canada, etc.
        leaveyou 12y ago

martinko 12y ago

>Otherwise they have no idea what the surcharge ought to be. Nonsense. The surcharge is the difference between the spot rate and the futures rate with which they hedge. They can easily predict (to a reasonable degree) the volume they need to hedge by estimating their market.

acchow 12y ago

> That presumes they have some idea of the short-term forward volatility of the rubble, which no one does right now The derivatives market still exists and you can null out future FX risk by paying whatever the derivatives market is charging for it now and passing that cost onto consumers.

Kadin 12y ago

You base the surcharge on what the swap costs. The cost of the swap takes into account the market's idea of what the ruble is going to do vs. the dollar. Basically, you make the customer buy insurance against the ruble losing value against the dollar. It's like charging a subprime borrower PMI.

achamayou 12y ago
But you still need to find someone willing to sell you (enough of) the swaps in question. And that may not be easy.

CamperBob2 12y ago

That presumes they have some idea of the short-term forward volatility of the rubble My guess is that your typo isn't too far from the truth. Everything we've seen lately with regard to falling oil prices is geared towards attacking the Putin regime. Eventually the Russian people will find themselves living in a North Korean-style pariah state... or else they'll wake up and take drastic action to keep that from happening. Either way the medium-term outlook for the ruble is pretty much toast.

happyscrappy 12y ago
Or maybe Putin is popular enough to survive changing course in Ukraine before the economy is completely trashed. Also do you have a source that oil prices are being manipulated to punish Putin? Seems likely but I haven't seen anything.
- semi-extrinsic 12y ago
  I've also seen it suggested that the oil price drop is a "stealth" sanction against Russia, but I don't follow the logic. Why do the Saudis want to sanction Russia? Unless one presumes some unspecified quid-pro-quo conspiracy between the US and the Saudis, I don't see it. I thrink driving the volatility up like this slows the investment rate in US shale oil significantly, and that's what the Saudis are doing.
  - leaveyou 12y ago
    Russia supports Bachar's regime. Bachar blocks Qatar's & Saudi oil/gas pipe from passing through Syria towards European market. Europe remains dependent on Russian gas(30%) and oil for another round. Saudis get angry and want to topple Bachar. Russia says no way. Saudis kick Russia in the groin economically by raising the oil production. Now it makes sense ? (lower oil price combined with other EU & US sanctions bring Russia on the brink of collapse: EU, US & Saudis high five furiously)
    - Steko 12y ago
      Nothing you said makes sense because the Saudis didn't increase production and at 12% of global supply do not have the capacity to change the price on the scale we're seeing without it being glad you obvious. The price is dropping because the Chinese and European economies are soft and becuase of increased supply from Libya in the short term along with the long term increases from the US, Russia, Canada, etc.
      - leaveyou 12y ago