Financial Risk Management Essay example
Masters
Essay
Finance & Accounting
Pages 4 (1004 words)
Download 0
ROLE OF DERIVATIVES IN MANAGING RISK WITHIN A BALANCED INVESTMENT PORTFOLIO Current financial market offers wide range of financial products to take the benefit of increased return as well as controlling risk. Finance professional have been adding value to balance sheets and portfolios with re-engineering the existing products with financial structures…

Introduction

Businesses in order to increase the return or to reduce the level of risk associated with product (financial product) are increasingly making use of financial derivates in the respective portfolios. Among the range of derivatives being used in market following few derivatives are most commonly used (Culp, 2011): Futures contracts ( facilitating transfer of asset on future date at an agreed price) Options (Call option or put option facilitates the purchasing or selling option to buyer or seller to an agreed date and price. To mention as the name implies options are not obligations). Swaps (Exchange of cash flow with another cash flows for gaining the required benefit) Hybrid (derivates that mix the features of more than one securities with financial engineering) Using these and others financial product of derivative category suiting to the need of the business as well as individuals financial marketers take advantage of derivatives to develop desired fashion portfolio or value of balance sheet. Derivatives allow hedging of the risks from various domains. Such as market risk, interest rate risk, model risk etc (Functional Finances, n.d). ...
Download paper
Not exactly what you need?

Related papers

Financial Innovation & Risk Management
Goldman Sachs is one of the banks using risk management strategies that either eliminates or mitigates some risks. In other instances, Goldman Sachs management decides to shift the risks to other parties (Goldman Sachs, 2012). The risk management strategies comprise of liquidity risk management, operations risk management, credit risk management and market risk management that has over the years,…
Financial Risk Management
At the business level, managers use VaR as a standard summery of market risk exposure. A benefit of the VaR which is a, the great value theory, is that it may be computed without full information of the return allocation. Semi or fully non-parametric estimation processes are obtainable for downside risk estimation. Additionally, at an adequately low confidence level the VaR calculate explicitly…
The association between the derivatives products and the financial risk management is quite substantial and significant
In order to operate in an effective manner, the banks need to manage their assets and liabilities from the various risks prevailing in the economy, one of which is the interest rate risk. Interest rate risk is the risk to earnings or capital arising from movement of interest rates. The need to manage the interest rate risk is very crucial for any bank and it has generally been observed that the…
Financial Risk Management
This study involves a comprehensive study of the risk management policies followed by Bear Stearns and how it led to its demise. Risk Management: An Overview Risk is a term associated with any type of business entity. Without risk it would have been an easy task for managers of a company to allocate its resources in the most effective way. And with the world experiencing the global financial…
Financial Risk Management
141). In this paper, Deutsche Bank, AG will be the organization that will be analyzed for its risk management and risk types it confronts. The types of risks that Deutsche Bank faces include: Credit risk: Credit risks come up from all dealings where concrete, conditional or possible claims in opposition to any counterparty, debtor or obligor. Deutsche Bank jointly refers to these parties as…
Corporate Financial Risk Management
Therefore, it is recommendable for the firm to hedge against price volatility by buying futures contract. Table of contents Introduction……………………………………………………………………………… 4 Designing of the hedging strategy…………………………………………………………4 An assessment of the impact of the above hedging…
Financial Risk Management
The banking and financial institutions of a country are responsible for the development and progress of different sectors in the economy. They mobilize household savings and lend it to the potential investors in a country. Investments made in the business corporations help them to expand and generate more employment opportunities in a country. Thus, financial institutions and banks play a pivotal…