We at Vedanta Hedging were asked to provide both formal oral and written evidence about the usefulness of derivatives for SMEs. This is particularly in respect of managing the risk of movements in interest rates, as well as in the currency markets. Many importers and exporters cannot afford for example currency swings of 10-20%.
An article in the FT warns that the Banking Reform Bill may severely restrict (or remove completely) the ability for SMEs to use simple derivatives for hedging (i.e. insurance) purposes. As we have argued, this would be a concerning move by the Government. Just because there has been widespread criticism of bank’s mis-selling interest rate hedging products to SMEs, does not mean that all SMEs should be denied the use of derivatives if they wish to choose them.