The role of interest rate swaps in corporate finance

Corporations - Finance ; Swaps (Finance)

Managing Risk in Farming: Concepts, Research, and Analysis

The risks confronted by grain and cotton farmers are of particular interest, given the changing role of the Government after passage of the 1996 Farm Act. With the shift toward less government intervention in the post-1996 Farm Act environment, a more sophisticated understanding of risk and risk management is important to help producers make better decisions in risky situations and to assist policymakers in assessing the effectiveness of different types of risk protection tools. In response, this report provides a rigorous, yet accessible, description of risk and risk management tools and strategies at the farm level. It also provides never-before-published data on farmers' assessments of the risks they face, their use of alternative risk management strategies, and the changes they would make if faced with financial difficulty. It also compares price risk across crops and time periods, and provides detailed information on yield variability.crop insurance, diversification, futures contracts, leasing, leveraging, liquidity, livestock insurance, marketing contracts, options contracts, production contracts, revenue insurance, risk, vertical integration, Farm Management, Risk and Uncertainty,

Value Preservation through Risk Management - A Shariah Compliant Proposal for Equity Risk Management

This paper makes a case for the preservation of Muslim Wealth through risk management. It provides an exposition of risk management techniques used in conventional finance and outlines the limitations faced by Muslim fund managers and businesses. This limitation arises from the proscription of key risk-management tools, in particular financial derivatives. Though the reasons for the prohibition are diverse, the overriding concern appears to be that they encourage speculative behaviour. As such the emphasis of Islamic risk management has been on, On Balance Sheet methods. The problem with On Balance Sheet methods is that they require the restructuring of business transactions which can render businesses less competitive and subject to residual risk. The paper proposes a portfolio insurance scheme that uses the logic and mechanics of conventional Index Put Options but in a Shariah compliant manner. The proposal is intended to strike a balance between the need to avoid speculation and the genuine need for hedging equity risks.Shariah compliant, equity risk management

Flexible Pricing and Payment Alternatives on Canadian Wheat Board Pooling For Wheat

Crop Production/Industries, Marketing,

The new risk management: the good, the bad, and the ugly

At one time, risk management was limited to insurance and the avoidance of lawsuits and accidents. The new risk management also includes using tools developed for pricing financial options for the management of financial risks within the firm. Trading in financial markets based on these tools can insulate companies from the risk of changes in interest rates, input prices, or currency fluctuations. In this article Philip H. Dybvig and William J. Marshall introduce the new risk management and the policy choices firms should be considering.Management ; Risk

Dealing with commodity price uncertainty

Liberalization in commodity markets has brought profound changes in the way price risks are allocated and managed in commodity subsectors. Price risks are increasingly allocated to private traders and farmers rather than absorbed by the government. The success of market reform depends on the ability of the emerging private sector to make full use of the available range of modern commodity marketing, price risk management and financing instruments. Because farmers do not generally have access to these instruments, intermediaries must be developed. Larger private traders and banks are in the best position to become these intermediaries. Preconditions needed for accessing modern commodity marketing, price risk management, and financing instruments are: a) creating an appropriate legal, regulatory, and institutional framework; b) reducing government intervention; c) providing training and raising awareness; and d) improving creditworthiness and reducing performance risk. The use of commodity derivative instruments to hedge commodity price risk is not new. The private sectors in many Asian and Latin American countries have been using commodity futures and options for some time. More recently, commodity derivative instruments are being used increasingly in several African countries and many economies in transition. And several developing and transition economies have sought to establish commodity derivative exchanges.Markets and Market Access,Payment Systems&Infrastructure,Environmental Economics&Policies,Commodities,International Terrorism&Counterterrorism,Access to Markets,Crops&Crop Management Systems,Commodities,Environmental Economics&Policies,Markets and Market Access

Hedging crude oil imports in developing countries

The objective of this paper is to explore the application of risk management techniques to a typical developing country state-owned oil company (SOC) involved in importing and refining crude oil and to make estimates of the potential gains from using such techniques. The paper is structured as follows. First, the authors describe the crude oil price data that they use in the study and estimate the volatility of oil prices. The next two sections discuss the nature of a typical SOC's exposure to oil prices and present risk management applications for each of the exposures identified. The following section discusses the internal and external constraints to the use of options and futures hedges typically encountered in a developing country and provides some possible remedies. The paper concludes that oil-importing developing countries could gain considerably from using financial risk management instruments if several constraints, particularly negative publicity and legal obstacles, are removed.Environmental Economics&Policies,Oil Refining&Gas Industry,Insurance&Risk Mitigation,Access to Markets,Markets and Market Access

Farmers and farmers’ associations in developing countries and their use of modern financial instruments

This paper starts with an overview of the current literature on the cost of price risk exposure to developing country farmers. It then discusses market-based price risk management instruments (such as futures and options) that can be used by farmers, as well as various mechanisms through which farmers' associations can facilitate farmers' access to price risk management tools as well as lower-cost financing (using warehouse receipt finance, repos and other structured financings). The experiences with use of such modern financial tools by farmers in several developing countries (Brazil, Colombia, Guatemala, India, Malaysia, Mexico, Philippines, Uganda) are described. The report concludes with a discussion of the practicalities of farmers' associations starting to use such financial instruments, including the potential of new technologies such as smart cards.farmers structured finance warehouse receipts price risk management

CONTRACT MARKET VIABILITY

Academia and the finance industry generate many proposals for new contract markets. Unfortunately, many proposed markets lack the critical attributes that promote success. We examine these attributes, and evaluate the potential of several announced proposals. We find that proposals emanating from the academy generally fail to consider the full suite of integrated financial services necessary to support a viable market, while proposals put forward by practitioners are much more likely to do so.Marketing,