Giddy | Managing Corporate Financial Risk

Deloitte & Touche

Workshop on

Managing Corporate Financial Risk

presented by
Professor Ian Giddy
New York University

What the Seminar is About
Managing market risk is an increasingly important aspect of corporate financial management. This module provides insights into three difficult aspects of risk management: interest rate risk, commodity price risk and foreign currency exposure. The instructor employs modern principles of finance to address the practical problems of measuring and managing corporate fianial risk in the context of business uncertainties, accounting imperfections and incomplete markets.

Method and Schedule
The lectures offer structure, the discussions amplify, and the case studies apply tools and concepts to real-world applications. Participants work in teams to solve problems in corporate risk management.

Who Should Attend?
The seminar is of relevance to both corporate financial officers and the bankers who serve them. This includes derivatives market professionals, commercial and investment bankers, securities analysts; investment officers and fund managers; other individuals whose professional future may be enhanced by an understanding of financial risk management in a corporate context.

At the end of this course participants will be able to:

Explain the basics of interest rate and foregn exchange exposure
Identify the different classes of hedging instruments
Understand duration, immunization, and related measures of interest rate risk
Understand accounting treatment, value at risk, and economic exposure to foreign exchange risk
Explain the principles of hedging strategies

Course Outline

Managing Corporate Financial Risk

Session	Topics
Session 1	Corporate Financial Risk Transactions, Accounting and Economic Exposure Integration of Financing and Hedging Decisions Hedging Instruments Compared Case Study: "Liberty Travel" Measuring Interest Rate Risk Measuring interest rate risk: Maturity, average life, and duration Duration and convexity of bonds Duration of portfolios Managing and matching fixed liabilities in pension funds and insurance companies Hands-on exercise: Immunizing a portfolio Measuring the gap: Value at Risk Closing the gap: portfolio restructuring Managing Rate Risk: Tools and Techniques Closing the gap: derivatives Futures, forwards and swaps Delta, gamma and the use of options Dynamic hedging Exercise: Managing the interest-rate risk of a mortgage portfolio funded with a straight bond.
Session 2	Managing Currency Risk Foreign Exchange and Eurocurrency Instruments Should Companies Actively Manage Currency Risk? Anatomy of Recent Accidents Transactions, Accounting and Economic Exposure Tools and Techniques for Managing Currency Exposure Case study: "U.S. Semiconductor" Guidelines for the Use of Different Hedging Instruments Forwards, Futures, Swaps and Options Managing Financial Risk and the "Value at Risk" Approach Commodity Price Risk Commodity Prices and the Cost of Carry Theory Commodity Swaps and Commodity-Linked Bonds Illustration: "Qantas" Conclusion

Readings:
"A Framework for Risk Management"
"The Management of Foreign Exchange Risk"

Cases:
"Liberty Travel," "Qantas," and "U.S. Semiconductor"

Handout:
"Managing Corporate Financial Risk"

References:
Smith, Smithson & Wilford, Managing Financial Risk, Institutional Investor
Shapiro, Multinational Financial Management,
Giddy, Global Financial Markets,

Workshop Instructor
Ian Giddy is on the faculty of finance at New York University, USA. He has taught finance at NYU, Columbia, Wharton, Chicago and elsewhere for the past thirty years. He was Director of International Fixed Income Research at Drexel Burnham Lambert from 1986 to 1989. The author of more than fifty articles on international finance, Dr Giddy has served at the International Monetary Fund and the U.S. Treasury and has been a consultant with numerous financial institutions and corporations in Europe, North America, the Middle East and Asia. He has lectured in more than forty countries, and has been involved in the asset-backed securities market for over 15 years. He is the author or co-author of The International Money Market, The Handbook of International Finance, Cases in International Finance, Global Financial Markets Asset Securitization in Asia, and The Hudson River Watertrail Guide.

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