Common Mistakes in Risk Management
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- Not having a well-defined Risk management policy.
- Not having a robust Risk management system , using Excel.
- Trying to capture highest rate for Export & lowest rate for Imports.
- Not monitoring the unhedged Exports / Imports
- Thinking that Export & Import is a Natural Hedge
- Not using Cash flows to design strategy to maximise profits.
Well defined Risk Management policy
While designing the policy the company must clearly define the following:-
- Method to arrive at costing rate.
- Instruments to be used for managing currency risk like Forward contract with banks, BSE currency futures, BSE Currency Options.
- Minimum & Maximum hedge ratios and conditions associated with it.
- Profit target and stoploss for unhedged Export/Import.
- Intervals at which the policy should be reviewed.
Robust Risk Management Systems
Having proper systems keeps the company informed about the risk. The company can take quick decisions to maximise gains and minimize losses.
- Not having a robust Risk Management system is a big mistake.
- Companies use Excel sheets to keep a record of their Exports / Imports exposure. In today’s competitive environment, company must be aware of the Risks they are exposed to.
Greed to get the best
- One of the most common practice observed is that the companies keep waiting for the best rates. Exporters wait for the highest rates and importers for the lowest.
- Another observation is that the companies compare the already hedged portfolio with the current rate . Ideal practice is to monitor the unhedged portion and minimise the risk of open positions.
- Companies should always compare the costing of the Export / import with the Hedge rate and costing of unhedged portfolio with the current market rate.
Export is not a natural hedge of Imports.
- One of the biggest misconceptions is that the Export and import are natural hedge.
- In case of a company having both Export and Import transaction, there is always an amount mismatch and time mismatch. Such companies can use this gap to their benefit and profitability can be increased if a proper Risk Management policy is designed to manage the Gap Risk.
How can we help you ??
Click here for FREE Risk Assessment
- Provide your company free Risk Assessment by our Professional Team
- Take mandate from the company for managing risk.
- Export & Import trades and payment cycle of the company will be analysed by us.
- Risk management policy will be designed in consultation with top executives of the company.
- End to end implementation and day to day management by our professional team.
Advantages
- Professional Risk management
- Cost effective
- Implementation of best international practices in your company.
- Implementation of strategies to reduce finance cost and generate maximum profits.
- Low upfront fee.
- You pay when you get the benefits of our strategies (Profit Sharing)
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