Learn about the factors that impact prices of risk management solutions, and how liquidity and volatility impact solution prices. See examples of FX, interest rate, and commodity markets that are liquid and illiquid.
- [Instructor] Nothing is free,…and financial risk management solutions…can cost a pretty penny.…There are four critical factors…that impact the price of a solution:…standardization, time, liquidity, and market volatility.…Recognizing these four critical factors…in different markets will help you understand…why they impact risk management solution costs,…so let's take a look at them.…The mostly commonly hedged financial markets…are interest rates, foreign exchange rates,…and commodity prices.…
And the prices of options, swaps, futures,…and forward agreements in these markets are dependent…on how standard the markets are,…how long you need a solution in place,…how liquid those markets are,…and how volatile those markets can be.…The first two of these factors that impact price,…standardization and time, are pretty straightforward.…Standardization is simply how common the requirement…for the risk management solutions are.…
If you can manage your risks…by accessing a broadly or deeply traded market,…then there are contracts traded on an exchange.…
Jason Schenker of Prestige Economics discusses nine types of corporate risk, including financial and nonfinancial risks. He explains the difference between direct risks that companies face constantly, as well as indirect risks that usually come from vendors, competitors, and counterparties. Then he covers how risks are typically resolved, either by elimination (divestiture or acquisition), transfer (hedging or insuring), offset (creating a natural hedge), or ownership (keeping the exposure). Finally, he reviews how corporations can actively measure and monitor risk by appointing dedicated risk managers, officers, and committees.
- Understanding risk in corporations
- Risk management process
- Nine different types of corporate risks
- Financial market risks
- Direct and indirect risks
- Risk management solutions
- How corporations actively manage risk