Accounting/Finance - Hedging Question?
Can anyone bestow their opinin on Active hedging of financial exposures is not largely standard among financial manager around the world. Some argue that financial command cannot alone increase the appeal of the firm and that a firm is better past its sell-by date managing its core business risks while departing itself exposed to some (if not all) financial risks.
Do you agree or disagree, and why or why not(briefly).
Answers:
Long residence rates are fixed rates and short occupancy floating fixed to something approaching LIBOR. So to decrease the long possession risks one can use interst rate swaps after contracting to swap long permanent status rates near short permanent status ones.
There are copious ways financial risks are manage, one is ratification it on to the consumer or assigning risk, assumption of risk or accepting the risk, mitigating risk by hedging or sharing the risk. One trying to oversee risk can choose any one of these strategies according to ones own entail and power.
It depends if the risks are inherent in their business model, or are external factor that are not contained by their control. For example a mortgage company that requests to borrow at short occupancy rates and make long permanent status loans at fixed rates, should put off against an increase in short permanent status rates. However a stall against a drop in actual estate values, would probably give somebody a lift too much application to be worth the mitigation benefit.
A company that have deeply of foreign operation that would be impacted by currency fluctuations should mitigate those risks. However if 20% of it customers are surrounded by foreign country, it would be better to involve the risk of decrease sale due to the dollar increasing than to attempt to mitigate the difficult to consider risk.
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Do you agree or disagree, and why or why not(briefly).
Answers:
Long residence rates are fixed rates and short occupancy floating fixed to something approaching LIBOR. So to decrease the long possession risks one can use interst rate swaps after contracting to swap long permanent status rates near short permanent status ones.
There are copious ways financial risks are manage, one is ratification it on to the consumer or assigning risk, assumption of risk or accepting the risk, mitigating risk by hedging or sharing the risk. One trying to oversee risk can choose any one of these strategies according to ones own entail and power.
It depends if the risks are inherent in their business model, or are external factor that are not contained by their control. For example a mortgage company that requests to borrow at short occupancy rates and make long permanent status loans at fixed rates, should put off against an increase in short permanent status rates. However a stall against a drop in actual estate values, would probably give somebody a lift too much application to be worth the mitigation benefit.
A company that have deeply of foreign operation that would be impacted by currency fluctuations should mitigate those risks. However if 20% of it customers are surrounded by foreign country, it would be better to involve the risk of decrease sale due to the dollar increasing than to attempt to mitigate the difficult to consider risk.