Market risks

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Movements in the currency markets, exposure to volatility in FX rates and shifts in commodity prices and interest rates can seriously disrupt earnings.

Without effective management, fluctuating revenue from export markets and costs from foreign suppliers can undo potential benefits of operating globally. We can help.

To Hedge or Not to Hedge?

Assume that you have a list of all of the risks that you are exposed to, categorizes these risks and measured your exposure to each one. A fundamental and key question that you have to answer is which of these risks you want to hedge against and which you want to either pass through to your investors or exploit.

To make thus judgment, you have to consider the potential costs and benefits of hedging; in effect, you hedge those risks where the benefits of hedging exceed the costs.

The Costs of Hedging Protecting yourself against risk is not costless. Sometimes, as is the case of buying insurance, the costs are explicit. At other times, as with forwards and futures contracts, the costs are implicit.  We need to consider the magnitude of explicit and implicit costs of hedging against risk and how these costs may weigh on the final question of whether to hedge in the first place.

Alternative techniques for hedging risk

If you decide to reduce your exposure to a risk or multiple risks, there are several approaches that you can use. Some of these are integrated into the standard investment and financing decisions that every business has to make; your risk exposure is determined by the assets that you invest in and by the financing that you use to fund these assets. Some have been made available by a large and growing derivatives markets where options, futures and swaps can be used to manage risk exposure.

FINBRAIN-ITC has accumulated several man-years of experience in Treasury & Capital Markets operations, project management, solutions implementation, customization & support for major clients. We offer solutions for covering risks in all vanilla & exotic financial products throughout the trade lifecycle, all the way from front office valuation & capturing to middle office monitoring & risk management and to back office processing, accounting & reconciliation.