FINANCIAL RISK - a change in a financial condition

Financial Risk Management

Credit Risk

Political Risk

Interest Rate Risk

Currency Risk

Quantify exposure

Hedge or Not

Identify risk exposure

Implement and Monitor hedging

Transaction

Manage

insuring

Debt factoring without recourse

Credit control Procedures

credit limits and terms

debt collection activities such as aged debtor analysis, statements and reminders

Policies regarding credit checks

the debt can be sold to a factoring business but without obligation to buy back those debts in the event of default

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

Refinancing

See Chapter 12 for managment

Fixed or Floating

Economics

Translation

See other chapter for management

Management

Diversification or suppliers and customers

Diversification of financing

Diversification of production and sales

Marketing

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)

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

Derivatives

Used for hedging, speculation and arbitrage

Hedging / risk management for P3