MANAGING FINANCIAL

RISKS LEADING
PRACTICES
MANAGING FINANCIAL RISKS LEADING PRACTICES

Manage Financial Risks Process

Evaluate the financial risks in the context of business objectives.
Benefits:
• The company conducts its risk management activities to minimize negative cash flow events and potentially improve the shareholder
value.
• Management considers risks a core treasury function fully supported by lines oversight, key talent and technology support, and actively
works with line managers to formulate strategies and tactics.
• The company uses a formal review structure in which polices are reviewed and strategies are tested on models to stimulate performance
under stressful market conditions.
• Other departments help develop and implement programs and frequently consult treasury risk management.

Involve senior management in financial risk management.

Benefits:
• Senior management takes an active role in risk activities and strategy formulation. Risk positions and procedures are periodically
reviewed, and direct communication lines with staff are always maintained.
• Senior treasury executives and their immediate staff have a working knowledge of all aspects of hedging and maintain direct
communication with the board.
• Policy and decision-making authority regarding the level and scope of derivative product activity rests at the highest possible level.

Establish written risk management policies that define the goals and limits for hedging and trading activities.
Benefits:
• Multiple models are used to detect and confirm market trends. Recommendations are issued, reviewed and executed by the treasury
staff.
• Quantitative criteria is used to judge models’ performance.
• Treasury management has a thorough understanding of the products and strategies it uses at the same level it is operating.
• The company periodically reviews its risk management practices to reflect the changing market conditions. Treasury has formalized
procedures to quickly change hedge exposures and limits, reevaluate benchmarks, and determine the hedge ratios as market conditions
warrant.
• Minimum credit ratings are specified when dealing with counterparties and tied to the length of the transaction.