“Using Hedging as One of the Applications of Financial Engineering to Limit the Increase in Prices of Imported Basic Commodities to Reduce Expenditure in the Public Budget - The Ration Card in Iraq as a Model”

Abstract

The research aims to demonstrate the impact of financial engineering tools on government expenditure (governing Expenditures), along with highlighting the effect of hedging against fluctuations in prices of essential commodities in achieving food security and addressing the problem related to the strategic stockpile of essential commodities (such as wheat, rice, sugar, and oil) due to insufficient local production to meet actual needs. The research community included the Iraqi Ministry of Finance, relying on actual financial data from the research sample, which is the Accounting Department, for the period from 2015 to 2022, in addition to other data obtained practically from the Ministry of Commerce and the two public companies for food and grain trade. The research employed an inductive and analytical descriptive approach and utilized financial engineering methods, ideas, and tools to find solutions to the financial problems of government financial institutions, represented by reducing governing expenses, which are part of operating expenses in the Public state budget, and managing their financial risks effectively. The research concluded that the use of financial engineering applications, such as hedging against the increase in prices of essential commodities through options contracts/American options, contributed to reducing the prices of imported essential commodities, which in turn reflects on providing larger quantities of these commodities and thus achieving food security.