Risk and the corporate treasurer: Which risks matter?

Corporate treasurers are usually concerned about risk, and often have a mandate from their companies to measure and mitigate it. The importance of this mandate is evidenced by the amount of material published every month, encouraging treasurers to adopt different approaches and use different instruments.

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October 15, 2015 Categories

Corporate treasurers are usually concerned about risk, and often have a mandate from their companies to measure and mitigate it.  The importance of this mandate is evidenced by the amount of material published every month, encouraging treasurers to adopt different approaches and use different instruments.

The main problem with risk mitigation is that there are many different kinds of risk. Any attempt to remove all risks is likely to be prohibitively expensive, and so it is useful to look in detail at how to classify and view these risks.  At a basic level, there are two different measures of any risk:

Every risk mitigation instrument and approach carries a cost, and this cost is usually calculated by reference to these two different dimensions.

When deciding on a risk management strategy, the treasurer must therefore decide what view they take of this interplay of factors to help them to analyse the most economically efficient approach.  Different companies have different needs, but the following points may be useful when making the appropriate analysis:

Different companies have different risk appetites and, indeed, face different risk scenarios.  The above points suggest that treasurers should first of all start looking at their mid-level risks, and then work outwards, individually examining each risk type and scenario and deciding on whether it is economic to buy protection.

Download our guide where we examine different types of risk and explore specific hedging approaches.

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