Learn some of the different types of nonfinancial risk management solutions, such as creating natural hedges. Learn about counterparty risk in risk management solutions and the different types of solutions, including divestitures and acquisitions, and owning risks.
- When thinking about financial market risk management,…the first instinct of some…is to jump into financial market solutions…but there are usually other solutions,…natural hedges, physical agreements,…acquisitions and divestitures…that could provide the same level of protection or better,…some of the ways that companies…can also reduce their financial market risks…without using options, swaps, forwards or futures.…These are more operational in nature…but they can get the job done.…
One of the simplest ways…to manage a financial market risk…is to use a natural hedge,…a hedge that exists within your business operations.…For example, if you have Euro exposures…but you're a US-based business,…maybe you want to reinvest the Euros…in Europe when that currency is weak…and you can build your business in Europe.…This would allow your company…to repatriate its earnings…to bring them back to the United Stated in dollars…whenever it wants.…When the Euro is strong,…you could quickly ship them to the United States…and convert them into dollars…
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