Flashcards in 5. Financial Risk Management Deck (20)
Name three types of exposure that derivatives can cover?
1. Interest rates
2. Foreign exchange rates
Name five factors that will influence the implementation of financial risk management?
1. Financial systems & internal controls
2. Reporting tools
3. Cash budgets
4. Credit insurance
5. Due diligence
Mitigation of ... risk is the payment of debts when they fall due. This can be achieved by using a cash budget.
What are some of the factors that the rate of interest depends on?
What are the benefits of good financial risk management:
1. Improves financial planning
2. Facilitates robust investment decisions
3. Informs hedging decisions
4. Encourages monitoring of markets
What does a company need to know before they borrow money?
1. How interest rate was determined
2. Interest rate at commencement
3. Nature of interest rate (fixed or variable)
4. Duration of payment
... is the risk to each party of a contract that the counterparty will not live up to its contractual obligations.
... is the mitigation action for credit risk.
... is the financial loss suffered due to the default of a borrower or counterparty under a contract.
... focuses on the possible impact which fluctuations in exchange rates may have on the foreign exchange holdings or the commitments payable in foreign exchange.
... ratio is the relationship between current assets and current liabilities.
... is the probability of the event of default.
... are financial products derived from some other existing product. Examples include options, futures and swaps.
... generally refers to the care a reasonable person should take before entering into an agreement or a transaction with another party.
... relates to the uncertainty surrounding the payment of future amounts.
... is the exposure of an enterprise to adverse events that erode profitability and in extreme situations bring about business collapse.
... risk focuses on the possible risks that arise when a business pursues opportunities abroad.
... is the risk that a business will be unable to obtain funds to meet its obligations as they fall due either by increasing liabilities or by converting assets into money without loss.
... ratio is a liquidity indicator that further refines the current ratio by measuring the amount of the liquid current assets available to cover current liabilities.