THE ROLE OF FOREIGN EXCHANGE DERIVATIVES IN MITIGATING EXCHANGE RATE VOLATILITY IN THE CONTEXT OF DIGITALIZATION
Abstract
Modern foreign exchange markets operate under conditions of increasing volatility driven by globalization and technological change. In Ukraine, these processes are intensified by macro-financial vulnerability, which complicates the management of currency risks. This increases the relevance of using foreign exchange derivatives as instruments for mitigating exchange rate fluctuations in the context of financial market digitalization. The purpose of the article is to substantiate the role of foreign exchange derivatives in mitigating exchange rate volatility, taking into account the impact of financial market digitalization. The study examines the role of FX derivatives in smoothing exchange rate fluctuations under digitalization conditions. The relevance of the issue of increased exchange rate variability in Ukraine, caused by macroeconomic instability, intensified global financial influences, and structural imbalances, is highlighted. The dynamics of the hryvnia exchange rate are analyzed, and the level of its volatility over 2021–2026 is assessed. The limited effectiveness of foreign exchange interventions as a stabilization tool is identified. The necessity of developing the FX derivatives market as a key instrument for hedging currency risks and improving the predictability of financial flows is substantiated. The impact of digitalization on the transformation of financial markets and the expansion of opportunities for the use of derivative instruments is determined. The study proposes a model for assessing exchange rate fluctuations, which forms a theoretical basis for further empirical research in the field of volatility analysis. The practical significance of the study lies in the possibility of applying the obtained results to improve currency risk management mechanisms at both the state level and the level of individual economic agents. The proposed approaches can be used in shaping monetary and debt policy, as well as in the activities of financial institutions and enterprises to enhance hedging effectiveness. In addition, the findings can be applied to support the development of the FX derivatives market in Ukraine in the context of financial digitalization.
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