Search results for: hedging and risk management

Authors: Rodrigo Zeidan

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The paper identifies failures of decision making and corporate governance that allow non-financial companies around the world to develop hedging strategies that lead to hefty losses in the aftermath of the financial crisis. The sample is comprised of 346 companies from 10 international markets, of which 49 companies (and a subsample of 13 distressed companies) lose a combined US$18.9 billion. An event study shows that most companies that present losses in derivatives experience negative abnormal returns, including a number of companies in which the effect is persistent after a year. The results of a probit model indicate that the lack of a formal hedging policy, no monitoring to the CFOs, and considerations of hubris and remuneration contribute to the mismanagement of hedging policies.

Keywords: risk management, hedging, derivatives, monitoring, corporate governance structure, event study, hubris

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Authors: Yi-Hsien Wang, Fu-Ju Yang, Hwa-Rong Shen, Rui-Lin Tseng

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The business is notably related to the market risk according to the increase of liberalization of financial markets. Hence, the company usually utilized high financial leverage of derivatives to hedge the risk. When the company choose different hedging instruments to face a variety of exchange rate risk, we employ the Multinomial Logistic-AHP to analyze the impact of various derivatives. Hence, the research summarized the literature on relevant factors affecting managers selected exchange rate hedging instruments, using Multinomial Logistic Model and and further integrate AHP. Using Experts’ Questionnaires can test multi-level selection and hedging effect of different hedging instruments in order to calculate the hedging instruments and the multi-level factors of weights to understand the gap between the empirical results and practical operation. Finally, the Multinomial Logistic-AHP Model will sort the weights to analyze. The research findings can be a basis reference for investors in decision-making.

Keywords: exchange rate risk, derivatives, hedge, multinomial logistic-AHP

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Authors: Mahfoud Djebbar

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The past two decades or so have witnessed phenomenal growth of the Islamic financial services industry. The whole industry has been thriving at about 15 percent per annum. This development entails the Islamic financial engineering, IFE, to some kind of crossroads, lagging behind its conventional counterpart. Therefore, IFE, and particularly traded products development, and in order to achieve its goals, two approaches are available, i.e., replicating engineering and innovative engineering. We also try to emphasis the innovative strategy since it guards the Islamic identity of different financial products and processes, and thereby, improves the creativity in the Islamic financial industry. The attempt also centers on sukukization (Islamic securitization), innovation, liquidity management, and risk management and hedging in the Islamic financial system. Finally, the challenges facing IFE are also addressed.

Keywords: islamic financial engineering, hedging and risk management, innovation, securitization, money market instruments, islamic capital markets

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Authors: Ademola Ajibade

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Previous studies have explored several rationales for hedging strategies, but the evidence provided by these studies remains ambiguous. Using a hand-collected dataset of 2460 observations of non-financial firms in eight African countries covering 2013-2022, this paper investigates the determinants and extent of corporate hedge use. In particular, this paper focuses on the link between country-specific conditions and the corporate hedging behaviour of firms. To our knowledge, this represents the first African studies investigating the association between country-specific factors and corporate hedging policy. The evidence based on both univariate and multivariate reveal that country-level corruption and government quality are important indicators of the decisions and extent of hedge use among African firms. However, the connection between country-specific factors as a rationale for corporate hedge use is stronger for firms located in highly corrupt countries. This suggest that firms located in corrupt countries are more motivated to hedge due to the large exposure they face. In addition, we test the risk management theories and observe that CEOs educational qualification and experience shape corporate hedge behaviour. We implement a lagged variables in a panel data setting to address endogeneity concern and implement an interaction term between governance indices and firm-specific variables to test for robustness. Generally, our findings reveal that institutional factors shape risk management decisions and have a predictive power in explaining corporate hedging strategy.

Keywords: corporate hedging, governance quality, corruption, derivatives

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Authors: Mohammed Hussein Ahmed, Bahar Mohammed Kareem

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This study is concerned with the pragmatic discoursal study of hedging constructions in English language. Hedging is a mitigated word used to lessen the impact of the utterance uttered by the speakers. Hedging could be either adverbs, adjectives, verbs and sometimes it may consist of clauses. It aims at finding out the extent to which speakers and participants of the discourse use hedging constructions during their conversations. The study also aims at finding out whether or not there are any significant differences in the types and functions of the frequency of hedging constructions employed by male and female. It is hypothesized that hedging constructions are frequent in English discourse more than any other languages due to its formality and that the frequency of the types and functions are influenced by the gender of the participants. To achieve the aims of the study, two types of procedures have been followed: theoretical and practical. The theoretical procedure consists of presenting a theoretical background of hedging topic which includes its definitions, etymology and theories. The practical procedure consists of selecting a sample of texts and analyzing them according to an adopted model. A number of conclusions will be drawn based on the findings of the study.

Keywords: hedging, pragmatics, politeness, theoretical

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Authors: Siti Navila

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Hedging as a kind of pragmatic competence is an essential part in achieving the goal in communication, especially in academic discourse where the process of sharing knowledge among academic community takes place. Academic discourse demands an appropriateness and modesty of an author or speaker in stating arguments, to name but few, by considering the politeness, being cautious and tentative, and differentiating personal opinions and facts in which these aspects can be achieved through hedging. This study was conducted to find the hedging devices used by students as well as to analyze how they use them in their oral presentation. Some oral presentations from English Department students of the State University of Jakarta on their Academic Presentation course final test were recorded and explored formally and functionally. It was found that the most frequent hedging devices used by students were shields from all hedging devices that students commonly used when they showed suggestion, stated claims, showed opinion to provide possible but still valid answer, and offered the appropriate solution. The researcher suggests that hedging can be familiarized in learning, since potential conflicts that is likely to occur while delivering ideas in academic contexts such as disagreement, criticism, and personal judgment can be reduced with the use of hedging. It will also benefit students in achieving the academic competence with an ability to demonstrate their ideas appropriately and more acceptable in academic discourse.

Keywords: academic discourse, hedging, hedging devices, lexical hedges, Meyer classification

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Authors: Norm Josephy, Lucy Kimball, Victoria Steblovskaya

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Hedging of a portfolio of European options under proportional transaction costs is considered. Our discrete time financial market model extends the binomial market model with transaction costs to the case where the underlying stock price ratios are distributed over a bounded interval rather than over a two-point set. An optimal hedging strategy is chosen from a set of admissible non-self-financing hedging strategies. Our approach to optimal hedging of a portfolio of options is based on theoretical foundation that includes determination of a no-arbitrage option price interval as well as on properties of the non-self-financing strategies and their residuals. A computational algorithm for optimizing an investor relevant criterion over the set of admissible non-self-financing hedging strategies is developed. Applicability of our approach is demonstrated using both simulated data and real market data.

Keywords: extended binomial model, non-self-financing hedging, optimization, proportional transaction costs

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Authors: Edson Vengesai

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Derivative products have become essential instruments in portfolio diversification, price discovery, and, most importantly, risk hedging. Derivatives are complex instruments; their valuation, volatility implications, and real impact on the underlying assets' behaviour are not well understood. Little is documented empirically, with conflicting conclusions on how these instruments affect firm risk exposures. Given the growing interest in using derivatives in risk management and portfolio engineering, this study examines the practical impact of derivative usage on the underlying stock price exposure and systematic risk. The paper uses data from South African listed firms. The study employs GARCH models to understand the effect of derivative uses on conditional stock volatility. The GMM models are used to estimate the effect of derivatives use on stocks' systematic risk as measured by Beta and on the total risk of stocks as measured by the standard deviation of returns. The results provide evidence on whether derivatives use is instrumental in reducing stock returns' systematic and total risk. The results are subjected to numerous controls for robustness, including financial leverage, firm size, growth opportunities, and macroeconomic effects.

Keywords: derivatives use, hedging, volatility, stock price exposure

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Authors: Salma Mefteh-Wali, Marie-Josephe Rigobert

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We investigate the impact of foreign currency debt on firm performance for a sample of non-financial French firms studied over the period 2002 to 2012. As foreign currency debt is both a financing and hedging instrument against foreign exchange risk, we mobilize optimal hedging theory and capital structure theory. When we study the impact on firm value, our main results show that before and after the financial crisis of 2008, foreign debt had the same behavior as domestic debt. We find that during the crisis period, foreign debt positively affects firm value. Investors perceive foreign debt as a natural hedging instrument that is likely to reduce the costs of underinvestment, alleviate cash flow volatility, limit the costs of financial distress, and generate tax shield benefits. Also, our results show that foreign leverage negatively affects the firm performance proxied by ROA and ROE, during and after the financial crisis. However, this impact is positive in the pre-crisis period.

Keywords: foreign currency derivatives, foreign currency debt, foreign currency hedging, firm performance

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Authors: Yibo Shao, Jiajie Liu

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This article uncovers the practice of pragmatism of Singaporean foreign policy by analyzing its foreign diplomatic behavior. It also points out the Singapore’s hedging strategy on the relations between China and American and how to balance these two greater powers in Southeast Asian. This paper used qualitative approach by reviewing literature and policy documents intensively to find out the responses to our research questions.

Keywords: hedging, pragmatism, Sino-Singapore relations, South China Sea

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Authors: Daniel Mokatsanyane, Johnny Jansen Van Rensburg

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The integral role oil-crushing companies play in sunflower oil production is often overlooked to offer high-quality oil to refineries and end consumers. Sunflower oil crushing companies in South Africa are exposed to price fluctuations resulting from the local and international markets. Hedging instruments enable these companies to hedge themselves against unexpected prices spikes and to ensure sustained profitability. A crushing company is a necessary middleman, and as such, these companies have exposure to the purchasing and selling sides of sunflower. Sunflower oil crushing companies purchase sunflower seeds from farmers or agricultural companies that provide storage facilities. The purchasing price is determined by the supply and demand of sunflower seed, both national and international. When the price of sunflower seeds in South Africa is high but still below import parity, then the crush margins realised by these companies are reduced or even negative at times. There are three main products made by sunflower oil crushing companies, oil, meal, and shells. Profits are realised from selling three products, namely, sunflower oil, meal and shells. However, when selling sunflower oil to refineries, sunflower oil crushing companies needs to hedge themselves against a reduction in vegetable oil prices. Hedging oil prices is often done via futures and is subject to specific volume commitments before a hedge position can be taken in. Furthermore, South African oil-crushing companies hedge sunflower oil with international, Over-the-counter contracts as South Africa is a price taker of sunflower oil and not a price maker. As such, South Africa provides a fraction of the world’s sunflower oil supply and, therefore, has minimal influence on price changes. The advantage of hedging using futures ensures that the sunflower crushing company will know the profits they will realise, but the downside is that they can no longer benefit from a price increase. Alternative hedging instruments like options might pose a solution to the opportunity cost does not go missing and that profit margins are locked in at the best possible prices for the oil crushing company. This paper aims to investigate the possibility of employing options alongside futures to simulate different scenarios to determine if options can bridge the opportunity cost gap.

Keywords: derivatives, hedging, price risk, sunflower, sunflower oil, South Africa

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Authors: Bangkit Adhi Nugraha, Bambang Suripto

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On September 2016 Bank Indonesia (BI) release regulation no.18/18/PBI/2016 that permit bank clients for using the FX option call spread USD/IDR. Basically, this product is a combination between clients buy FX call option (pay premium) and sell FX call option (receive premium) to protect against currency depreciation while also capping the potential upside with cheap premium cost. BI classifies this product as a structured product. The structured product is combination at least two financial instruments, either derivative or non-derivative instruments. The call spread is the first structured product against IDR permitted by BI since 2009 as response the demand increase from Indonesia firms on FX hedging through derivative for protecting market risk their foreign currency asset or liability. The composition of hedging products on Indonesian FX market increase from 35% on 2015 to 40% on 2016, the majority on swap product (FX forward, FX swap, cross currency swap). Swap is formulated by interest rate difference of the two currency pairs. The cost of swap product is 7% for USD/IDR with one year USD/IDR volatility 13%. That cost level makes swap products seem expensive for hedging buyers. Because call spread cost (around 1.5-3%) cheaper than swap, the most Indonesian firms are using NDF FX call spread USD/IDR on offshore with outstanding amount around 10 billion USD. The cheaper cost of call spread is the main advantage for hedging buyers. The problem arises because BI regulation requires the call spread buyer doing the dynamic hedging. That means, if call spread buyer choose strike price 1 and strike price 2 and volatility USD/IDR exchange rate surpass strike price 2, then the call spread buyer must buy another call spread with strike price 1’ (strike price 1’ = strike price 2) and strike price 2’ (strike price 2’ > strike price 1‘). It could make the premium cost of call spread doubled or even more and dismiss the purpose of hedging buyer to find the cheapest hedging cost. It is very crucial for the buyer to choose best optimum strike price before entering into the transaction. To help hedging buyer find the optimum strike price and avoid expensive multiple premium cost, we observe ten years 2005-2015 historical data of USD/IDR volatility to be compared with the price movement of the call spread USD/IDR using Garman–Kohlhagen Model (as a common formula on FX option pricing). We use statistical tools to analysis data correlation, understand nature of call spread price movement over ten years, and determine factors affecting price movement. We select some range of strike price and tenor and calculate the probability of dynamic hedging to occur and how much it’s cost. We found USD/IDR currency pairs is too uncertain and make dynamic hedging riskier and more expensive. We validated this result using one year data and shown small RMS. The study result could be used to understand nature of FX call spread and determine optimum strike price for hedging plan.

Keywords: FX call spread USD/IDR, USD/IDR volatility statistical analysis, Garman–Kohlhagen Model on FX Option USD/IDR, Bank Indonesia Regulation no.18/18/PBI/2016

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Authors: Ruchi Agarwal, Jake Ansell

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Austerity impacts on all aspects of society. Companies into the future will have to be more capable of dealing with the risks they face. Enterprise Risk Management (ERM) has widely been accepted in recent years as an approach to manage risks within businesses. ERM attempts to tackle risk holistically with gains from opportunities in a managing risk and reduction in the risk of failure. The paper reviews merits and demerits of approaches to risk management in regard to antifragility. A qualitative study has investigated current practices and the problems with ERM implementation by interviewing over 25 chief risk officers and senior management. The findings indicate the gap in ERM description, understanding, and implementation. The paper suggests risk learning and expertise knowledge supports development of effective enterprise risk management by designing systems with inherent resilience.

Keywords: risk management, interviews, antifragility, failure

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Authors: Natalia M. Acevedo, Luis M. Jimenez, Erick Lambis

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Imperfections in the capital market are used to argue the relevance of the corporate risk management function. With corporate hedge, the value of the company is increased by reducing the volatility of the expected cash flow and making it possible to face a lower bankruptcy costs and financial difficulties, without sacrificing tax advantages for debt financing. With the propose to avoid exchange rate troubles over cash flows of Colombian exporting firms, this dissertation uses financial options, over exchange rate between Peso and Dollar, for realizing a financial hedge. In this study, a strategy of hedge is designed for an exporting company in Colombia with the objective of preventing fluctuations because, if the exchange rate down, the number of Colombian pesos that obtains the company by exports, is less than agreed. The exchange rate of Colombia is measured by the TRM (Representative Market Rate), representing the number of Colombian pesos for an American dollar. First, the TMR is modelled through the Geometric Brownian Motion, with this, the project price is simulated using Montecarlo simulations and finding the mean of TRM for three, six and twelve months. For financial hedging, currency options were used. The 6-month projection was covered with financial options on European-type currency with a strike price of $ 2,780.47 for each month; this value corresponds to the last value of the historical TRM. In the compensation of the options in each month, the price paid for the premium, calculated with the Black-Scholes method for currency options, was considered. Finally, with the modeling of prices and the Monte Carlo simulation, the effect of the exchange hedging with options on the exporting company was determined, this by means of the unit price estimate to which the dollars in the scenario without coverage were changed and scenario with coverage. After using the scenarios: is determinate that the TRM will have a bull trend and the exporting firm will be affected positively because they will get more pesos for each dollar. The results show that the financial options manage to reduce the exchange risk. The expected value with coverage is approximate to the expected value without coverage, but the 5% percentile with coverage is greater than without coverage. The foregoing indicates that in the worst scenarios the exporting companies will obtain better prices for the sale of the currencies if they cover.

Keywords: currency hedging, futures, geometric Brownian motion, options

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Authors: Olaniyi O. Omoyajowo

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To be successful in today’s competitive global environment, manufacturing industry must be able to respond quickly to changes in technology. These changes in technology introduce new risks and hazards. The management of risk/hazard in a manufacturing process recommends method through which the success rate of an organization can be increased. Thus, there is a continual need for manufacturing industries to invest significant amount of resources in risk management, which in turn optimizes the production output and profitability of any manufacturing industry (if implemented properly). To help improve the existing risk prevention and mitigation practices in Small and Medium Enterprise (SME) in Nigeria Manufacturing Industries (NMI), the researcher embarks on this research to develop a systematic Risk Management process.

Keywords: manufacturing management, risk, risk management, SMEs

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Authors: Alexander Kelíšek, Denisa Janasová, Veronika Mitašová

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Weak signals using is often associated with early warning. It is possible to find a link between early warning, respectively early problems detection and risk management. The idea of early warning is very important in the context of crisis management because of the risk prevention possibility. Weak signals are likened to risk symptoms. Nowadays, their usefulness as a tool of proactive problems solving is emphasized. Based on it, it is possible to use weak signals not only in strategic planning, project management, or early warning system, but also as a subsidiary element in risk management. The main question is how to effectively integrate weak signals into risk management. The main aim of the paper is to point out the possibilities of weak signals using in small and medium enterprises risk management.

Keywords: early warning system, weak signals, risk management, small and medium enterprises (SMEs)

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Authors: Walid Chkili

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This paper investigates the dynamic relationship between gold and stock markets using data for BRICS counties. For this purpose, we estimate three multivariate GARCH models (namely CCC, DCC and BEKK) for weekly stock and gold data. Our main objective is to examine time variations in conditional correlations between the two assets and to check the effectiveness use of gold as a hedge for equity markets. Empirical results reveal that dynamic conditional correlations switch between positive and negative values over the period under study. This correlation is negative during the major financial crises suggesting that gold can act as a safe haven during the major stress period of stock markets. We also evaluate the implications for portfolio diversification and hedging effectiveness for the pair gold/stock. Our findings suggest that adding gold in the stock portfolio enhance its risk-adjusted return.

Keywords: gold, financial markets, hedge, multivariate GARCH

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Authors: Heba Abdelmotaal, Magdy Abdel-Kader

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Purpose: This study explores whether a firm’s effective political risk management is preventing real and accrual earnings management . Design/methodology/approach: Based on a sample of 130 firms operating in Egypt during the period 2008-2013, two hypotheses are tested using the panel data regression models. Findings: The empirical findings indicate a significant relation between real and accrual earnings management and political risk. Originality/value: This paper provides a statistically evidence on the effects of the political risk management failure on the mangers’ engagement in the real and accrual earnings management practices, and its impact on the firm’s performance.

Keywords: political risk, risk management failure, real activities manipulation, accrual earnings management

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Authors: Dchieche Amina, Aboulaich Rajae

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In this work, we will modelize Waad Bil Mourabaha contract. This islamic contract provides the right to buy goods at a future date with a Mourabaha. Waad is a promise of sale or purchase of goods, declared in a unilateral way. In spite of the divergence between some schools of Islamic law about the Waad, this contract will allow us to study sophisticated and interesting contract: Waad Bil Mourabaha that can be used for hedging. In order to price Waad Bil Mourabaha contract, we will use an adapted Black and Scholes model using the Shariah compliant assumptions.

Keywords: Islamic finance, Black-Scholes model, call option, risks, hedging

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Authors: Mirzet SeHo, Alaa Alaabed, Mansur Masih

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In theory, risk-sharing-based financing (RSF) is considered a corner stone of Islamic finance. It is argued to render Islamic banks more resilient to shocks. In practice, however, this feature of Islamic financial products is almost negligible. Instead, debt-based instruments, with conventional like features, have overwhelmed the nascent industry. In addition, the framework of present-day economic, regulatory and financial reality inevitably exposes Islamic banks in dual banking systems to problems of conventional banks. This includes, but is not limited to, interest rate risk. Empirical evidence has, thus far, confirmed such exposures, despite Islamic banks’ interest-free operations. This study applies system GMM in modeling the determinants of RSF, and finds that RSF is insensitive to changes in interest rates. Hence, our results provide support to the “stability” view of risk-sharing-based financing. This suggests RSF as the way forward for risk management at Islamic banks, in the absence of widely acceptable Shariah compliant hedging instruments. Further support to the stability view is given by evidence of counter-cyclicality. Unlike debt-based lending that inflates artificial asset bubbles through credit expansion during the upswing of business cycles, RSF is negatively related to GDP growth. Our results also imply a significantly strong relationship between risk-sharing deposits and RSF. However, the pass-through of these deposits to RSF is economically low. Only about 40% of risk-sharing deposits are channeled to risk-sharing financing. This raises questions on the validity of the industry’s claim that depositors accustomed to conventional banking shun away from risk sharing and signals potential for better balance sheet management at Islamic banks. Overall, our findings suggest that, on the one hand, Islamic banks can gain ‘independence’ from conventional banks and interest rates through risk-sharing products, the potential for which is enormous. On the other hand, RSF could enable policy makers to improve systemic stability and restrain excessive credit expansion through its countercyclical features.

Keywords: Islamic banks, risk-sharing, financing, interest rate, dynamic system GMM

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Authors: Pırıl Tekin, Rızvan Erol

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Risk management has become very important and popular in developing countries in recent years. Especially making patient and employee health and safety issues compulsory in the hospitals, raised the number of studies in Turkey. Also risk management become more important for hospital senior management from clinics to the laboratories. Because quality is really important to be chosen for both patients to consult and employees to prefer to work. And also risk management studies can lead to hospital management team about future works and methods. By this point of view, this study is the risk assessment carried out in the biggest dental hospital in the south part of Turkey. This study was conducted as a research case study, covering two different health care place; A Clinic and A Laboratory. It shows that the problems in this dental hospital and how it can solve all.

Keywords: risk management, healthcare, dental hospital, quality management

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Authors: Rashid Masoud Ali Al-Mazrui, Ramadhani Mashaka Shabani

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Islamic banks and financial institutions are exposed to the same risks as conventional banking. These risks include the rate return risk, credit or market risk, liquidity risk, and operational risk among others. However, being a financial institution that operates Islamic banking and finance operations, there is additional risk associated with its operations different from conventional finance, such as displacing commercial risk. They face Shari'ah compliance risks because of their failure to follow Shari'ah principles. To have proper mitigation and risk management, banks should have proper risk management policies to mitigate risks. This paper aims to study the risk management taken by Islamic banks in comparison with conventional banks. Also, the study evaluates the provisions for risk management taken by selected Islamic banks and conventional banks. The study employs qualitative analysis using secondary data by applying a content analysis approach with a sample size of 4 Islamic banks and four conventional banks ranging from 2010 to 2020. We find that these banks all use the same technique, except for the associated risk. The extra ways are used, but only for additional risks that are available to Islamic banking and finance.

Keywords: emerging risk, risk management, Islamic banking, conventional bank

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Authors: Hotlan Siagian, Han Tae Hee

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This study aims to examine the effect of supplier trust and top management involvement on the supply chain risk management through buyer-supplier relationship. The population of the research is 44 Korean companies domiciled in East and Central Java of Indonesia. The respondent consists of a top management level from each company. Data collection used a questionnaire designed with five-item Likert scale. Collected data were analyzed using structural equation modeling (SEM) technique with SmartPLS software version 3.0 to examine the hypotheses. The result revealed that supplier trust has an effect on supply chain risk management, top management involvement affects supply chain risk management, supplier trust influences buyer-supplier relationship, top management involvement affects the buyer-supplier relationship, and buyer-supplier relationship affects supply chain risk management. The last finding is that buyer-supplier relationship empirically mediates the effect of supplier trust and top management involvement.

Keywords: buyer supplier relationship, supplier trust, supply chain risk management, top management involvement

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Authors: Najeebah Almahmeed

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Risk Management is an evolving subject among organizations that include corporations, governments, non-governmental organizations, and not-for-profit corporations. In order to enhance awareness around the importance of Risk Management and make sure everyone is using it in their day-to-day job, the Risk Culture topic has emerged and gained importance not only in the Finance Sector but also in the National Oil Companies in Kuwait. Risk Culture can be defined as the shared beliefs, attitudes, and behaviors within a company that guide its approach to managing risks. It acts as a connecting force that links policies, procedures, and individuals, influencing how risks are understood and tackled through activities. In this research, benefits of Risk Culture are shared, guidelines are presented to promote a risk aware culture, and fully embed and enforce Risk-based processes and procedures. Moreover, this research demonstrates methodologies of measuring the Risk Culture using specific dimensions and clusters.

Keywords: clusters, dimensions, national oil companies, risk culture, risk management

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Authors: Masoud Ghahvechi Pour

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Risk management is a systematic and regular process of identifying, analyzing and responding to risks throughout the project's life cycle in order to achieve the optimal level of elimination, reduction or control of risk. The purpose of project risk management is to increase the probability and effect of positive events and reduce the probability and effect of unpleasant events on the project. Risk management is one of the most fundamental parts of project management, so that unmanaged or untransmitted risks can be one of the primary factors of failure in a project. Effective risk management does not apply to risk regression, which is apparently the cheapest option of the activity. However, the main problem with this option is the economic sensitivity, because what is potentially profitable is by definition risky, and what does not pose a risk is economically interesting and does not bring tangible benefits. Therefore, in relation to the implemented project, effective risk management is finding a "middle ground" in its management, which includes, on the one hand, protection against risk from a negative direction by means of accurate identification and classification of risk, which leads to analysis And it becomes a comprehensive analysis. On the other hand, management using all mathematical and analytical tools should be based on checking the maximum benefits of these decisions. Detailed analysis, taking into account all aspects of the company, including stakeholder analysis, will allow us to add what will become tangible benefits for our project in the future to effective risk management. Identifying the risk of the project is based on the theory that which type of risk may affect the project, and also refers to specific parameters and estimating the probability of their occurrence in the project. These conditions can be divided into three groups: certainty, uncertainty, and risk, which in turn support three types of investment: risk preference, risk neutrality, specific risk deviation, and its measurement. The result of risk identification and project analysis is a list of events that indicate the cause and probability of an event, and a final assessment of its impact on the environment.

Keywords: risk, management, knowledge, risk management

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Authors: Tio Novita Efriani

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Public sector organizations work in a complex and risky environment. Since the beginning of 2000s, the public sector has paid attention to the need for an effective risk management. The Indonesian public sector has also concerned about this issue and in 2008 it enacted the Government Regulation that gives mandate for the implementation of risk management in government organizations. This paper investigates risk management implementation in the Indonesian public sector organizations and the role of transformational leadership and internal audit activities. Data was collected via survey. A total of 202 effective responses (30% response rate) from employees in 34 government ministries were statistically analyzed by using Partial least square structural equation modelling (PLS-SEM) and the software was SmartPLS 3.0. All the constructs were lower order, except for the risk management implementation construct, which was treated as a second-order construct. A two-stage approach was employed in the analysis of the higher order component. The findings revealed that transformational leadership positively influence risk management implementation. The findings also found that the core and legitimate roles of internal audit in risk management positively affect the implementation of risk management. The final finding showed that internal auditing mediates a relationship between transformational leadership and risk management implementation. These results suggest that the implementation of risk management in the Indonesian public sector was significantly supported by internal auditors and leadership. The findings confirm the importance of transformational leadership and internal audit in the public sector risk management strategies.

Keywords: Indonesian public sector, internal audit, risk management, transformational leadership

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Authors: Abdoulahad Allamine

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The objective of this study is to assess the impact of climate variability on agriculture and food security in 43 countries of sub-Saharan Africa. We use for this purpose the data from BADC bases, UNCTAD, and WDI FAOSTAT to estimate a VAR model on panel data. The sample is divided into three (03) agro-climatic zones, more explicitly the equatorial zone, the Sahel region and the semi-arid zone. This allows to highlight the differential impacts sustained by countries and appropriate responses to each group of countries. The results show that the sharp fluctuations in the volume of rainfall negatively affect agriculture and food security of countries in the equatorial zone, with heavy rainfall and high temperatures in the Sahel region. However, countries with low temperatures and low rainfall are the least affected. The hedging policies against the risks of climate variability must be more active in the first two groups of countries. On this basis and in general, we recommend integration of agricultural policies between countries is done to reduce the effects of climate variability on agriculture and food security. It would be logical to encourage regional and international closer collaboration on the development and dissemination of improved varieties, ecological intensification, and management of biotic and abiotic stresses facing these climate variability to sustainably increase food production. Small farmers also need training in agricultural risk hedging techniques related to climate variations; this requires an increase in state budgets allocated to agriculture.

Keywords: agro-climatic zones, climate variability, food security, Sub-Saharan Africa, VAR on panel data

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Authors: Ali Abdullah Albezaghi

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This article aims to introduce a conceptual framework that can facilitate investigations concerning the role of risk management practices in the relationship between construction risks and the construction project's performance. This article is structured based on the extant literature; it reviews theoretical perspectives, highlights the gaps, and illustrates the significance of developing a framework of suggested relationships. Despite growing interest in the role of risks in construction project performance, previous studies have paid little attention to investigating the moderating role of risk management practices on the risk-performance link. This has left researchers and construction project managers with minimal information to explain the conditions under which risk management practices can reduce the impact of project-related risks and improve performance. In this context, this article suggests a viable research model with propositions that assess risk-performance relationships and discusses the potential moderating effects on the domain relationship. This paper adds to the risk management literature by focusing on risk variables that directly impact performance. Further, it also considers the moderating role of risk management practices in such relationships.

Keywords: risk management practices, external risks, internal risks, project risks, project performance

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Authors: Shu-Han Hsu, Jiho Yoon, Chwen Sheu

Abstract:

With the rapidly growing of blockchain technology and cryptocurrency, various industries which include tourism has added in cryptocurrency as the payment method of their transaction. More and more tourism companies accept payments in digital currency for flights, hotel reservations, transportation, and more. For travellers and tourists, using cryptocurrency as a payment method has become a way to circumvent costs and prevent risks. Understanding volatility dynamics and interdependencies between standard currency and cryptocurrency is important for appropriate financial risk management to assist policy-makers and investors in marking more informed decisions. The purpose of this paper has been to understand and explain the risk spillover effects between six major cryptocurrencies and the top ten most traded standard currencies. Using data for the daily closing price of cryptocurrencies and currency exchange rates from 7 August 2015 to 10 December 2019, with 1,133 observations. The diagonal BEKK model was used to analyze the co-volatility spillover effects between cryptocurrency returns and exchange rate returns, which are measures of how the shocks to returns in different assets affect each other’s subsequent volatility. The empirical results show there are co-volatility spillover effects between the cryptocurrency returns and GBP/USD, CNY/USD and MXN/USD exchange rate returns. Therefore, currencies (British Pound, Chinese Yuan and Mexican Peso) and cryptocurrencies (Bitcoin, Ethereum, Ripple, Tether, Litecoin and Stellar) are suitable for constructing a financial portfolio from an optimal risk management perspective and also for dynamic hedging purposes.

Keywords: blockchain, co-volatility effects, cryptocurrencies, diagonal BEKK model, exchange rates, risk spillovers

Procedia PDF Downloads 116

Authors: Aparna Viswanath

Abstract:

Electricity spot prices are highly volatile under optimal generation capacity scenarios due to factors such as non-storability of electricity, peak demand at certain periods, generator outages, fuel uncertainty for renewable energy generators, huge investments and time needed for generation capacity expansion etc. As a result market participants are exposed to price and volume risk, which has led to the development of risk management practices. This paper provides an overview of risk management practices by market participants in electricity markets using financial derivatives.

Keywords: financial derivatives, forward, futures, options, risk management

Procedia PDF Downloads 450