Financial Risk Management
The objective of Financial risk management is to protect assets and cash flows from any risk. Treasury function works to accurately assess financial risks by identifying financial exposures including foreign exchange, interest rate, credit, commodity and other enterprise risks. Learn about the various risks that are managed by treasury.
The objective of Financial risk management is to protect assets and cash flows from any risk.
Treasury function works to accurately assess financial risks by identifying financial exposures including foreign exchange, interest rate, credit, commodity and other enterprise risks.
And then try to manage the market based on those risks. It must develop effective hedge strategies after gaining real-time insight into a variety of risk positions that translates into less exposure.
You can differentiate between risks from changes to stock prices, interest rates and exchange rates.
Financial & Market Risks
Here the objective is to control and monitor the financial and market risks a company is exposed to. Treasury should identify explicit and implied financial risks, credit risks and operational exposures and modal risk mitigation strategies.
Market risks result from the danger of negative market developments (changes to parameters on the money and capital markets), which in turn affect the financial assets of a company.
Treasury system creates and maintain all the market data required to value financial instruments -both real data and fictitious data to run scenarios.
Some instruments that are exposed to market risks are; Bonds, Loans, Money market transactions, Forward rate agreements; Swaptions; Futures; Bond options; Options on futures
Currency Risks
Currency Risk and foreign exchange risk arises when transaction is denominated in currency other than base currency or when foreign subsidiary maintains financial statements in currency other than reporting currency.
Some instruments that are exposed to currency risks are Forward exchange outstanding transactions and Currency options.
Commodity Price Risk
Commodity Price Risk refers to uncertainties of future market values and of the size of the future income, caused by the fluctuation in the prices of commodities.
Commodity risk management is to identify, quantify, and mitigate exposure to commodity price and foreign-exchange risk.
Robust analytics is used to understand risk positions in real time, that reduces price risks resulting from core business operations with appropriate hedging.
Interest Rate Risk
Risk that arises for bond owners from fluctuating interest rates.
It impacts bonds, Interest rate guarantees, Interest rate swaps and cross-currency interest rate swaps.
Regulatory Compliance
There is always an inherent risk that organization will not be able to comply with all relevant laws and regulations that may result in fines and penalties.
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