• FX risk – the basics

    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.

  • Assessing risk management in uncertain times

    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.

  • Trade risks

    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 in purchasing or procurement departments, but treasury should ensure that the financial risks that result are identified and managed properly. In this article we look at the prevalent trade risks and the ways in which to mitigate them.

  • Liability Driven Investment

    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 the balance sheets of scheme sponsors.

  • The price risk in carbon trading

    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 terminology used is explained in more detail in last month’s article.

  • Emissions trading

    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 series of articles on emissions trading, we look at the regulatory framework of national and multinational emissions trading schemes.

  • External risk reporting

    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 and mandatory risk reporting efficiently can not only save considerable time and costs, but also add value to their business.

  • Information risk management

    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 companies are exposed to a wide range of information risks which need to be managed effectively, not only to comply with legal requirements such as Sarbanes-Oxley, but more importantly to support the company’s business objectives.

  • Customer risk

    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.

  • Weather risk

    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 severe weather events, new risk management instruments have emerged to manage weather risk exposures resulting from high-probability adverse weather events.