Managing Interest and Exchange Rate Risks
Company directors have a legal and moral responsibility to preserve the corporate entity. They must not take unnecessary risks leading to financial distress. Excessive borrowing and foreign exchange exposure entail such risk. The most obvious risk is inability to make loan payments when due. In this chapter, however, we shall be concerned with managing the narrower risks associated with changing rates of interest and with changing foreign exchange rates.Companies can hedge risks using various options, forwards, futures, and swap transactions. Hedging is about matching assets and liabilities in a manner that makes the matched combination immune to a source of risk. If a company has cash flows, assets, and liabilities denominated in foreign currencies, exposure to unexpected changes in exchange rates can constitute significant risk for the company. Therefore, the Board cannot leave it to shareholders to hedge the company's foreign exchange risk exposure within the context of their own portfolios. Shareholders cannot protect the corporate entity or its creditworthiness in this way. Furthermore, a company cannot keep its shareholders sufficiently informed about the company's current risk exposures for them to hedge their own portfolios effectively. Consequently, it falls to the Corporate Treasurer to hedge at least those risks that plausibly could lead to financial distress
Year of publication: |
2019
|
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Authors: | Bangonan, Tirza Vanessa |
Other Persons: | Ramba, Alvyonitha Ratu (contributor) |
Publisher: |
[2019]: [S.l.] : SSRN |
Subject: | Theorie | Theory | Zinsrisiko | Interest rate risk | Währungsrisiko | Exchange rate risk | Risikomanagement | Risk management | Zins | Interest rate | Wechselkurs | Exchange rate | Wechselkurspolitik | Exchange rate policy |
Saved in:
freely available
Extent: | 1 Online-Ressource (16 p) |
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Type of publication: | Book / Working Paper |
Language: | English |
Notes: | Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments January 22, 2019 erstellt |
Other identifiers: | 10.2139/ssrn.3320411 [DOI] |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10012894370
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