Understanding financial risk: practices and trends
While the ability to manage financial risk enables a company to limit the occurrence and exposure of financial risks on performance, it also presents companies with some major challenges according to a recent study by Mazars.
An effective hedging strategy can contribute to reducing the volatility of a company’s financial results, which in turn reduces a company’s risk premium. We can already see that the ability to manage foreign exchange, interest rate and commodity price risks increases value and gives companies a level of economic stability, even at times of interest rate and commodity price volatility.
In addition, the globalisation of the economy as well as the increasing number of companies exposed to financial risks are likely to contribute to the development of further strategies that enable companies to actively manage such risks. This means today’s Financial Directors are confronted with an increasing number of important choices when it comes to implementing an effective risk management policy.