identifying, measuring and managing financial risk

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1、Identifying,measuringandmanagingfinancialriskByTomChan,HK2015.06.15Identifying,measuringandmanagingfinancialriskCorporateFinanceLiquidityrisk:riskofhavinginsufficientcashresourcestomeetday-to-dayobligations.Interestraterisk:adversemovementininterestrateswillaffectprofitby

2、increasinginterestexpenseorreduceinterestincome.Foreignexchangerisk:riskthattherateofexchangeusedtoconvertforeigncurrencyrevenues,expenses,cashflows,assetsorliabilitiestothehomecurrencymovesadverselyresultinginreducedprofitabilityand/orshareholderwealth.Economicriskarises

3、whenacompanyisexposedtotheeffectofexchangeratemovementsonitsinternationalcompetitiveness.Translationriskarisesfromtheconversionoflong-termforeigncurrencyassetsandliabilitiesintothehomecurrencyatregularintervalsforstatutoryreasons.Transactionriskarisesfromnormaloperational

4、businessactivitiesofconvertingforeigncurrencyreceiptsorpaymentsintothehomecurrency.Commoditypricing:riskthatapricechangeinakeycommodityinputoroutputadverselyaffectsthefinancialperformance.Othercommoditypriceshaveaforeigncurrencyelementtotheirpricingandthisheightenstherisk

5、.Managingcommoditypriceriskissimilartomanagingforeignexchangerisk.Financialrisks*Treasuryoperationalrisk:theriskassociatedatfinanciallossarisingfromtheoperationalactivitiesofthetreasuryfunction.Thisistheinherentriskarisingfromoperatingatreasuryfunction.Businessoperatingri

6、sk:theriskassociatedwithrelianceoninternalandexternalsystemsrelevanttothemonitoring,negotiatinganddeliveryoffinancialtransactions.Creditrisk:theriskthattheotherpartytoafinancialtransactioncompletelydefaultsanddoesnotmeetitsfinancialobligationsorfailstomeetitsfinancialobli

7、gationontime.Counterpartyriskariseswhentheotherpartytoafinancialtransactionwillnotmeetitsobligationsastotimingoramountofsettlement.Countryriskcouldbesub-dividedintothreetypesofrisk:Politicalrisk:Governmentdirectivesandpoliciesthatmayaffectthefinancialcontractualperformanc

8、eofeitherpartytothetransactionorcreatecontinuinguncertaintyaboutwhatthegovernmentmightdonext.Reg