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FINANCIAL RISK - a change in a financial condition (Financial Risk…
FINANCIAL RISK - a change in a financial condition
Financial Risk Management
Quantify exposure
Hedge or Not
Identify risk exposure
Implement and Monitor hedging
Credit Risk
Manage
insuring
Debt factoring without recourse
the debt can be sold to a factoring business but without obligation to buy back those debts in the event of default
Credit control Procedures
credit limits and terms
debt collection activities such as aged debtor analysis, statements and reminders
Policies regarding credit checks
Political Risk
Actions by government affecting financial aspects of business
restrictions on repatriating cash (capital or dividends)
Restriction on conversion of the currency
insisting on resident investors or a joint venture with local company
rationing the supply of foreign currency
Restrictioed access to local borrowings
exchange rate volatility due to political actions
commercial risks because foreign government discriminate against overseas firms eg quotas, tariffs there taxes
A minimum number of local nationals to be employed
Risk of confiscation or destruction of overseas assests
Price fixing by the government
Invalidating patients
minimum percentage of local components to be used
Claiming compensation for past action
Management
Entering into foreign joint venture
Obtaining agreement and contracts with overseas government
Structuring investment(local sourcing of materials and labour)
using local financing
Prior negotiation (concession agreements and planned divestments
Plans for eventual ownership / part-ownership by foreign country's investors
Assessment
evaluate the current government
Political history
Evaluate macro economics situation eg inflation, employment, etc
Look at changing religious and cultural attitudes
Political ranking tables
ake advice from the bank, British embassy and department of trade and industry (DI)
Interest Rate Risk
Refinancing
See Chapter 12 for managment
Fixed or Floating
Currency Risk
Transaction
Economics
Management
Diversification or suppliers and customers
Diversification of financing
Diversification of production and sales
Marketing
Translation
See other chapter for management
Derivatives
Used for hedging, speculation and arbitrage
Hedging / risk management for P3