Book contents
- Frontmatter
- Contents
- List of abbreviations
- List of figures
- List of tables
- List of boxes
- Preface
- 1 The strategic nature of corporate risk management
- 2 Economic exposures in corporate risk management
- 3 Managing market-related business exposures
- 4 Extending the risk management perspective
- 5 Integrative risk management perspectives
- 6 Current risk management practice and the rise of ERM
- 7 Strategic risk analyses
- 8 Strategic risk management – amendments to the ERM framework
- 9 Strategic risk management
- 10 Postscriptum
- Appendices
- Appendix 1 A strategic responsiveness model
- Appendix 2 Determining the premium on a call option
- Appendix 3 Determining the value of a real option
- Index
- References
2 - Economic exposures in corporate risk management
Published online by Cambridge University Press: 05 June 2012
- Frontmatter
- Contents
- List of abbreviations
- List of figures
- List of tables
- List of boxes
- Preface
- 1 The strategic nature of corporate risk management
- 2 Economic exposures in corporate risk management
- 3 Managing market-related business exposures
- 4 Extending the risk management perspective
- 5 Integrative risk management perspectives
- 6 Current risk management practice and the rise of ERM
- 7 Strategic risk analyses
- 8 Strategic risk management – amendments to the ERM framework
- 9 Strategic risk management
- 10 Postscriptum
- Appendices
- Appendix 1 A strategic responsiveness model
- Appendix 2 Determining the premium on a call option
- Appendix 3 Determining the value of a real option
- Index
- References
Summary
To begin the risk management discourse, this chapter outlines more conventional approaches to risk management. The starting point is common financial and market-related risks reflected in currency and interest rate exposures. The chapter provides an outline of common analytical approaches to monitor excess exposures. General measures of price sensitivities are presented and extended to assess the sensitivity of corporate equity positions to changing business conditions. The treatment of more complex market-related exposures in value-at-risk calculations is outlined and illustrated in multiple examples. The consequences of fat-tailed distributions that reflect a potential for rare but extreme events are discussed, as is the need for stress testing in corporate risk assessments.
Exposures to market risk
The overarching risk considerations in international business and multinational financial management has been the potential influence of changes in foreign exchange rates on future corporate cash flows and the related effects on long-term competitiveness. In addition to this, there have been frequent discussions of political, sovereign and country risks associated with international funds transfer and cross-border investments. Many historical events illustrate the potential effects of fluctuations in foreign exchange rates and volatile financial market prices in general. Some of these notable events include dramatic stories like those of Herstatt Bank, Franklin National and Metallgesellschaft (see Box 2.1 Bankhaus Herstatt – foreign exchange settlements, Box 2.2 Franklin National – currency speculation and Box 2.3 Metallgesellschaft – position on petroleum prices).
- Type
- Chapter
- Information
- Strategic Risk Management PracticeHow to Deal Effectively with Major Corporate Exposures, pp. 33 - 52Publisher: Cambridge University PressPrint publication year: 2010
References
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