The Handbook of Corporate Financial Risk Management (2nd Edition)
First published:
If you are a Risk.net subscriber you are entitled to 20% off your Risk books purchases. Please email enquiries@riskbooks.com for more information.
As part of your Risk.net subscription you are entitled to 20% off all of your Risk Books purchases. If you would like to place an order please email enquiries@riskbooks.com
Managing Commodity-linked Revenues and Currency Risk
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
This chapter is the first in which we investigate commodity risk. In our example, commodity risk is inextricably linked to the currency risk and the risk manager has to consider them both at the same time. The commodity risk impacts company’s revenues and the company has decided not to hedge it for two main reasons. First, like many other commodity producers, our company believes that shareholders want to have exposure to the main commodity produced. If they no longer want this exposure, they can either sell the shares or hedge the commodity exposure directly. The other reason is that, through the company’s day-to-day operations, it gathers intelligence on the commodity price that allows it to forecast and plan for periods of higher volatility. On the other hand, currency risk is different because it is not specific to the company, and arguably is not the primary reason why the shareholders would buy any of the company’s stock.
BACKGROUND
Oilco is based in Russia. The company has a broad international client base and sells oil and related products across the world. As is common in this industry, the oil is traded in USD and Oilco, which reports in USD, therefore faces a
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
