Risk of Company on Foreign Currency Exchange Borrowings in Turkey

Abstract

Foreign exchange risks strategies and techniques in managing the risks has become very important to international companies, while the risk of borrowing becoming low when the fluctuation of exchange rate is positively linked to income in the company. Due to the globalization, the foreign exchange markets are getting larger where exchange rate volatility is so severe. Higher volatility, higher risk for the companies with high foreign exchange borrowing. In last decades, Turkey had very rapid economic expansion. In this expansion, construction industry had rapid growth. Firms started big projects and some of them had foreign currency borrowing to finance their projects. These firms are exposed to a high risk from fluctuations of the currency when pay the foreign currency debt. Turkey had large stock of foreign currency debt. However, non-public sector borrowing is higher than public sector borrowing. This offers an additional risk for the markets and the companies. Firstly, country risk has been assessed, later the company‘s risk was assessed. Construction industry is one of the industry with high foreign exchange borrowing to finance the projects and importation of the input. The company was also chosen among the others with highest foreign debt. In this study, how foreign currency debt affects the company's financial position. The financial statement of the Company operating in the country with high stock of foreign exchange debt is analyzed.  After the analysis it was found out that the company as it in Construction Company had a high foreign exchange risk in 2017, as of raises of foreign currency borrowing. The instability of exchange rate markets in Turkey affects the company in construction industry's profitability.