How Firms in Developing Countries Manage Risk, Part 63
This discussion paper explains what financial risks face firms in developing countries and how managers deal with them. The volatility of financial markets in recent years has led to a number of new instruments for managing risks. This paper analyzes them and discusses their use.The author outlines several sources of risk for firms. These include uncertainties about the course of exchange rates, interest rates, and commodity prices, as well as risks not associated with transactions, such as inflation.Recent international developments in the management of risks are outlined. The paper discusses the progression of derivative securities employed to manage risk. These include forward contracts, options, swaps, and currency and interest rate futures.The paper reviews the special problems of developing countries in managing risks. The author cites access to securities markets, market regulation, and taxation of the instruments used to manage risk as examples of the impediments some firms face.This paper will be of interest to corporate financial officers and portfolio risk managers.
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in Measurement and Management of Risk
Managing Economic Exposure
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Bretton Woods system buyer call option central bank Chile Chilean commodity price risk commodity-linked company's competitiveness copper Corporation country risk creditworthiness currency denominated receivable currency exposure currency swaps debt depreciation derivative securities developing country firms dollar financing example exchange rate changes exchange rate effects exchange rate movements exchange risk exports financial institutions financial instruments financial markets firms in developing fixed floating exchange rates foreign currency denominated foreign exchange forward contracts forward rate agreements future exchange rate futures contracts futures markets IFC's illustrates important inflation instruments for managing interest rate swaps international markets international swap markets investment involved loan manage risk Mexican nominal exchange rate offsetting option contract P.O. Box percent peso premium price movements profit put option rate and commodity real exchange rate reduced result risk facing firms risk management instruments rupee sales agreement sectors sophisticated subsidiaries substantial Swiss franc trade transaction exposure variable