TOP TIPS: What Dodd-Frank means to your risk
Jul 25, 2012
TOP TIPS: A strategy for hedging
As the global markets continue to wobble with little end in sight, CT asked Gurpreet Banwait, a product manager at risk management software company FINCAD, for some simple tips on creating a hedging strategy.
Understand the Exposure
A treasurer first needs to understand how large the exposure is, when it is going to occur and the likelihood of loss. It’s then time to determine the exposure’s materiality and decide whether it should be hedged. To determine how much risk there is if it is not hedged, run a simple scenario analysis. What is the most likely outcome? What is the worst outcome? If this is too much market risk for the organization, then they should hedge.
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