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RiskManagement

Articles, publications, news items and events detailing risk management trends and techniques

	Corporate governance for treasurers - Article There has been a major focus on corporate governance by governments and regulators around the world over the last few years. These have concentrated on trying to rebuild confidence in the markets after some high profile scandals and to reduce the existence of money laundering. Although these have led to some well-publicised legislation, treasurers also need to demonstrate good corporate governan...
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	Corporate governance - international developements - Article This article looks at the three main international developments affecting corporate governance within multinational corporate treasuries today - the introduction of International Accounting Standards, the Sarbanes-Oxley Act and Basel 2. In each case, we describe the implications of the change before identifying the key risks treasurers need to manage....
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	Compliance with corporate governance regulations - Article The corporate governance agenda offers opportunities for treasurers to restructure their operations. There will be a cost to this, so the challenge is to incorporate compliance into regular daily activities as much as possible. Treasurers need to identify what they want to achieve from compliance and communicate that to the treasury department, the board and their investors....
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	Update on IAS 39 - Article The adoption of IAS/IFRS has created a significant amount of work for all companies required to comply with the EU regulation. One of the biggest problems for accountants, finance departments and treasurers has been the continued uncertainty over the specific requirements of the standards, specifically the controversial IAS 39 Financial Instruments: Recognition and Measurement. This article look...
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	Hedge effectiveness under IAS 39 - Article Any company wanting to adopt hedge accounting under IAS 39 will need to demonstrate how it expects every documented hedge to be effective and to demonstrate that each one has been effective at every balance sheet date. This article examines the requirements for hedge effectiveness testing under IAS 39 and identifies the most common effectiveness testing methods. The choice of testing method is i...
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	Managing exotic FX risk - Article Over recent years, multinational companies have diverted production facilities to lower wage economies and have sought to expand into emerging markets. As a result, treasurers have been asked to manage the foreign exchange risk in emerging markets which has arisen. This article identifies some of the difficulties associated with managing transaction risk in emerging markets. It then outlines th...
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	An introduction to translation risk - Article Changes in the exchange rate between the currency in which a company reports and those in which the company’s assets and liabilities are denominated, can have a significant impact on a company’s balance sheet. The risk of this impact is known as ‘translation risk’. It is not an indication of performance failure (at company-wide or individual subsidiary level), but a potential effect of exchange ...
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	Reporting - Article This article looks at how translation risk is reported in financial accounts and explains the methods used in balance sheet and profit and loss account translation....
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	Using hedging instruments - Article If you hedge a FX risk exposure, you are trying to establish a second currency position to offset what is lost or gained on the original exposure. The difficulty with hedging a translation risk exposure is that translation risk does not result in cash gains or losses, whereas most hedging transactions do. In this article, we look at the use of hedging instruments, explaining what you need to con...
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	Accounting treatments for hedges - Article We examine how accounting standards, particularly IAS 39, affect how hedged translation risk exposures are reported....
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	IAS 21 - Article We take a closer look at IAS 21 and the accounting treatment and translation methods this standard prescribes for the translation of financial statements denominated in a foreign currency....
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	FX risk management in an M&A environment - Article For multinational treasurers, managing foreign exchange exposures on a daily basis is an important role in itself. However in an acquisitive environment, the role can take on a different complexion. Treasurers will be required to evaluate any risk associated with making a foreign acquisition, to manage the purchase payments and then to quickly understand the impact of the acquisition on the newl...
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	Valuation of financial instruments - Article As financial markets become more complex, corporates are increasingly using derivative financial instruments such as forward forwards, futures, options and swaps. These can help to manage financial risks originating in the volatility of foreign exchange rates, interest rates or commodity prices. However, the use of these instruments has added a new dimension of financial risk for companies and t...
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	Conducting a systems audit - Article As the role of technology in treasury continues to expand, it is essential to ensure that the systems you have in place are functioning correctly and that the risk of fraud or error is kept to a minimum. We discuss the sort of risks that auditors look for and the advances in auditing technology that are shaping the way that data are monitored. ...
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	Interest rate risk measurement - Article The management of interest rate risk is an important part of corporate risk management. The active management of interest rate exposure minimises the risk of incurring losses and opportunity costs from movements in interest rates. In the first of four articles on interest rate risk management, we define interest rate risk and focus on the methods of measuring interest rate risk exposure....
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	Managing interest rate risk with swaps - Article There are several different methods of measuring interest rate exposure. Companies can decide how to manage the risks involved by identifying and measuring the effect that interest rate changes can have on a company’s assets and liabilities. There are many interest rate risk management strategies and tools available to the Treasurer. This month we focus on the use of interest rate swaps....
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	Managing interest rate risk with options - Article Having focused previously on how swaps can be used to manage interest rate risk exposures, this month we look at the use of interest rate options. Interest rate options are an additional tool which can be used to hedge the exposure of current and future borrowing requirements against changes in interest rates. Options allow companies to limit their exposure to higher interest rates, without rest...
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	The 8th EU Directive - Article The auditing and accountancy world has come under greater scrutiny after the Enron-Arthur Andersen scandal in 2001. While the US legislators reacted quickly with Sarbanes-Oxley, in Europe the response has been more gradual. In Europe, national and EU law makers judged that there was a different legal environment in this region. However, the Parmalat case shows that Europe is not immune to accou...
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	Tax efficient (intragroup) hedging activities - Article An increasing number of transactions are being concluded in a foreign currency, resulting in greater currency exchange risks. To limit these risks, entities use various types of hedging methods and instruments. In this article we discuss the distinction between the hedging of internal positions versus external positions from a group’s perspective and possible ways to use tax systems to avoid (ta...
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	Counterparty risk – part II - Article Counterparty risk is an area of increasing importance for the corporate treasurer. There are significant advantages to tackling counterparty risk at a group level, rather than a subsidiary level. In last month’s article on counterparty risk, we looked at how to identify potential sources of credit defaults and monitor the degree of risk they posed. This month, we look at managing counterparty r...
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	Enterprise Risk Management - Article Enterprise Risk Management (ERM) has received increasing attention in recent years. ERM provides a framework to standardise and integrate risk management across an organisation by identifying, measuring and managing the risks to which a company as a whole is exposed....
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	Enterprise Risk Management - Article In the first stages of the Enterprise Risk Management cycle a large number of risk management techniques can be employed to identify and quantify enterprise-wide risks. The tools and techniques used range from simple interview and brainstorming approaches to complex risk modelling....
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	Enterprise Risk Management - Article The trade-off between value and risk has become an important consideration in strategic corporate decision making. Enterprise risk management (ERM) analyses risk management activities as a part of value creation. To be successful, an ERM programme must identify key risks that are material to a company’s objectives and determine an optimal portfolio of risk response strategies....
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	Longevity and mortality risk - Article Longer life expectancy can lead to higher than expected pay-outs on pension plans and annuities. It also generates significant solvency issues for pension funds and insurance companies. The increasing awareness of longevity risk has led to a growing demand for capital market instruments that can be used to manage this particular risk exposure. However, initial experiences with mortality-linked s...
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	Weather risk - Article Businesses in a wide range of industries face weather risk in one form or another. A company’s sales, costs or other performance measures can be affected not only by extreme weather such as storms and floods, but also much more common weather events, for example warmer than average winters and wetter than average summers. While it has always been possible to take out insurance against rare but se...
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	Customer risk - Article As the use of traditional trade instruments such as letters of credit are replaced by trade conducted on an open account basis, the exposure to non-payment by customers is increasing for many companies. As a result, a company’s ability to assess the risk of customer default and the availability of instruments to transfer customer risk are becoming more important. ...
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	Information Risk Management - Article The ability to manage and use information is one of the key differentiators between companies in today’s business environment. The technological development of IT-infrastructure in particular has led to an ever increasing amount of electronic information that needs to be evaluated, processed and stored in a secure way without compromising the integrity of the information itself. As a result comp...
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	External risk reporting - Article Many stock market listed companies are reporting information on specific risks pertaining to their business in their financial statements and annual reports. Due to the lack of a standardised framework, external risk reporting is to date rather inconsistent, even between companies operating in the same markets and within the same industry. However, companies that address the issue of voluntary a...
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	Emissions trading - Article As regulators around the world are becoming increasingly alert to the risks from climate change, companies in the industrial sectors will have to assess the impact that emissions trading regulations will have on them. Mandatory trading schemes such as the European Union’s Emission Trading Scheme (EU ETS) create compliance and financial risks for companies covered by the scheme. In the first in a...
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	The price risk in carbon trading - Article The European Union Emissions Trading Scheme (EU ETS) has experienced significant volatility in terms of both trading volume and emission allowance pricing during its first trading phase from 2005 to 2007. In our second article on carbon trading we look at the drivers of carbon prices, the risks resulting from carbon price volatility and the instruments used to manage these risks. Some of the term...
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	Liability Driven Investment - Article At a time when many corporate sponsored pension schemes face deficits and funding gaps, liability driven investment has gained in popularity. As an investment strategy that aims to match and outperform a pension fund’s liabilities, it can enable pension funds to manage a number of uncompensated risks, such as interest rate and inflation risks, and reduce the volatility of pension liabilities on t...
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	Trade risks - Article Payments and the delivery of goods in international trade can be challenging and may present trading partners with a number of risks. These risks can be minimised or mitigated by choosing the right payment and credit terms and by using payment instruments that enable exporters and importers to manage their trade risk exposures. In many companies the terms of trade are negotiated by staff working i...
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	Assessing risk management in uncertain times - Article As global economies face what could be a very rocky year, companies must re-assess the risks they face across their global operations. This month we provide an overview of some of the areas that may be affected and consider the actions that can be taken in order to manage risks more effectively....
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	Risk Management - Article In the first of three articles on foreign exchange risk, we outline the different types of FX risk exposure faced by companies and discuss how these exposures can be avoided or reduced through internal business practices....
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	A guide to FX transactions - Article Our series of articles on foreign exchange risk management continues with a look at external hedging techniques and the benefits and disadvantages of individual hedging instruments such as forwards, futures, options and money market hedges....
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	Managing FX risk in restricted markets - Article In the third article in our series on FX risk we look at the management of transaction exposures in markets that are restricted by capital controls. The limited convertibility of currency and restricted availability of hedging instruments in these markets may make traditional risk management techniques ineffective. However, other instruments such as non-deliverable forwards and non-deliverable o...
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