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Managing market risk is an increasingly important aspect of corporate financial management. This module provides insights into three difficult aspects of risk management: interest rate risk, commodity price risk and foreign currency exposure. The instructor employs modern principles of finance to address the practical problems of measuring and managing corporate fianial risk in the context of business uncertainties, accounting imperfections and incomplete markets.

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AM            Interest Rate and Commodity Risk

• Corporate Financial Risk: Transactions, Accounting and Economic Exposure

• Integration of Financing and Hedging Decisions

• Hedging Instruments Compared

• Case Study: "Liberty Travel"

• Commodity Prices and the Cost of Carry Theory

• Commodity Swaps and Commodity-Linked Bonds

• Illustration: "Qantas"

Lunch

PM            Managing Currency Risk

• Foreign Exchange and Eurocurrency Instruments

• Should Companies Actively Manage Currency Risk?

• Anatomy of Recent Accidents

• Transactions, Accounting and Economic Exposure

• Tools and Techniques for Managing Currency Exposure

• Case study: "U.S. Semiconductor"

• Guidelines for the Use of Different Hedging Instruments

• Managing Financial Risk and the "Value at Risk" Approach

• Conclusion and Recap

 

 

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Readings:

"A Framework for Risk Management"

"The Management of Foreign Exchange Risk"

Cases:

"Liberty Travel," "Qantas," and "U.S. Semiconductor"

Handout:

"Managing Corporate Financial Risk"

References:

Smith, Smithson & Wilford, Managing Financial Risk, Institutional Investor, 1989

Shapiro, Multinational Financial Management, Prentice-Hall, 1996

Giddy, Global Financial Markets, DC Heath, 1994.

 

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Ian H. Giddy, Professor of Finance New York University • Stern School of Business 44 West 4th Street, New York 10012 Tel 212 998-0332 • Fax 212 995-4233

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Go to Giddy's Web Portal • Contact Ian Giddy at ian.giddy@nyu.edu