The Handbook of Corporate Financial Risk Management (2nd Edition)
First published:
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Introduction to Funding and Capital Structure
Foreword
Introduction
Theory and Practice of Corporate Risk Management
Theory and Practice of Optimal Capital Structure
Introduction to Funding and Capital Structure
How to Obtain a Credit Rating
Refinancing Risk and Optimal Debt Maturity
Optimal Cash Position
Optimal Leverage
Introduction to Interest Rate and Inflation Risks
How to Develop an Interest Rate Risk Management Policy
How to Improve Your Fixed-Floating Mix and Duration
Interest Rates: The Most Efficient Hedging Product
Do You Need Inflation-linked Debt?
Prehedging Interest Rate Risk
Pension Fund Asset and Liability Management
Introduction to Currency Risk
How to Develop Currency Risk Management Policy
Translation or Transaction: Netting Currency Risks
Early Warning Signals
How to Hedge High Carry Currencies
Currency Risk on Covenants
Optimal Currency Composition of Debt 1: Protect Book Value
Optimal Currency Composition of Debt 2: Protect Leverage
Cyclicality of Currencies and Use of Options to Manage Credit Utilisation
Managing the Depegging Risk
Currency Risk in Luxury Goods
Introduction to Credit Risk
Counterparty Risk Methodology
Counterparty Risk Protection
Optimal Deposit Composition
Prehedging Credit Risk
xVA Optimisation
Introduction to M&A-related Risks
Risk Management for M&A
Deal-contingent Hedging
Introduction to Commodity Risk
Managing Commodity-linked Revenues and Currency Risk
Managing Commodity-linked Costs and Currency Risk
Commodity Input and Resulting Currency Risk
Offsetting Carbon Emissions
Introduction to Equity Risk
Hedging Dilution Risk
Hedging Deferred Compensation
Stake-building
The sine qua non of every business and personal endeavour is the necessary funding. No matter how great the business idea or how brilliant its people, companies cannot exist if nobody will invest in them. Therefore, the first and arguably most important source of risk for every company is lack of funding.
Funding, in the broadest sense of the word, means the provision of monetary resources for a project or company. Funding can take many forms, and this chapter will focus on two main sources of unsecured fixed income funding (or simply “debt”): bonds and loans. Since this book is about risk management and not funding on its own (as well as for obvious reasons of space), we examine debt here rather than other types of funding instruments. This excludes equity, convertibles and other hybrid instruments, secured bonds, and many other types of funding instruments. One could write a whole book about each one of these topics, and in fact many such books have been written.11 See for example, Quiry, Le Fur, Salvi, Dallochio and Vernimmen (2011) for a general overview, or Woodson (2002) for a look at convertible bonds.
Corporate funding and risk management are intricately connected
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