Risk management in Indian

Firms

PRESENTED BY:
PUNYA PRAKASH PANDA(09DM065)
PAHLAVI(09DM096)
ASHWINI KU.P.N. SINGH(09DM097)
 AGENDA

INTRODUCTION
TYPES OF BUSINESS RISKS
RISK HEDGING:INSTRUMENTS USED BY
INDIAN FIRMS
CONCLUSION
 Risk management: Definition

Risk management is the identification,

assessment, and prioritization of risks followed by
coordinated and economical application of resources
to minimize, monitor, and control the probability
and/or impact of unfortunate events or to maximize
the realization of opportunities.
 TYPES OF RISK

PRICE RISK
FOREIGN EXCHANGE RATE RISK
INTEREST RATE RISK
Foreign exchange risk

WHAT DOES IT MEAN?

Foreign exchange risk is the risk arising from
foreign currency exposure.
Significant primary exposure to this risk is
for the corporate world.
They look towards banks to share this risk
 Reasons for Foreign Exchange Risks For Banks:

Assets
Investments
Bank’s borrowing activities
Fluctuations in currency
 Foreign exchange risks types:

Transaction exposure :Risk arises when the

movement of exchange rate between the date
of transaction to the date of cash Outflow or
Inflow.
Translation exposure: “accounting exposure
risk”. Arises from the need to translate
foreign currency asset to home currency.
Economic exposure: change in future earning
power and cash flow as a result of adjustment
of currencies.
 Other types:

Credit Risk
Country Risk
Operating Risk
Legal Risk
How to control and manage
forex risk?
 Internal Techniques:

Netting: an asset in foreign currency is used

to pay up a liability in a foreign currency so
that there is no need for conversion.
Leading and lagging:
Leading _ Making a flow occur earlier than
the due date.
Lagging_ delaying the flow beyond the due
date.
 External Techniques:

Whole
of the
risk is
Foreword Contracts: transfer
Currency futures: red to
Currency options: others
Foreword contracts: An agreement to buy or
sell foreign exchange for a predetermined
amount predetermined rate ,and on a
predetermined date.
Currency futures: Traded on exchanges
Currency options: Gives the buyer of an
option a right without obligation to buy or
sell foreign currency at a pre determined
price on a specified future date.
 PRICE RISK

The change or fluctuation in the price of a

commodity shares industrial products which
are subject to continuous changes and change
in price causes profit of business to change is
called price risk.
 
There are three main reasons why price risk
management is employed:
budget and/or profit margin protection
stabilization of cash flow and supply chain prices,
and
competitive advantage from swift reaction to market
price changes.
 Risk management process

Establishing the context

Risk assessment
Risk treatment
Monitor and review
 Example of price risk:

Hedging against volatility in ATF Prices.

Hedging against Price Volatility

Hedge Mechanism
 
Thank you