Ministry of Education and Science of the Republic of Kazakhstan
International Educational Corporation
Temirov K.G.
Hedging as the way of financial risks management
DIPLOMA THESIS
Major 5050900 - Finance
Almaty 2016
| Ministry of Education and Science of the Republic of Kazakhstan International Educational Corporation Admitted to defense ____________ the Dean of_ ______________________ (Date) DIPLOMA THESIS Theme: Hedging as the way of financial risks management Major 5050900 - Finance Scientific Supervisor Islyamova A.S. Performed by Temorov K.G. Format controller Almaty 2016 |
CONTENT
INTRODUCTION 4
1 Theoretical foundations of hedging as a way of financial risk management
1.1 The essence and the concept of the hedging 7
1.2 Types of hedging 9
1.3 Hedging techniques 15
2 The analysis of methods of financial risk management in the JSC Forte Bank
2.1 A general characteristic of the company
2.2 Analysis of the main indicators of financial - economic activity
2.3 Analysis of the major risks and their management
3 Development program improvement of financial risk management in the JSC Forte Bank
3.1 The total financial risk of the JSC "Forte Bank" on the basis of operational and financial leverage
3.2 The method of identifying potential areas of financial risk of the enterprise JSC "Forte Bank"
3.3 The main directions of improvement of the company financial management
CONCLUSIONS
REFERENCES
APPENDIX
Introduction
Each new business or a new project inevitably faces in its path with certain difficulties that threaten its existence. For the entrepreneur it is very important to be able to anticipate such difficulties and advance to develop strategies to overcome them. It is necessary to assess the risks and identify the problems that may face business. Success in the business world depends critically on the accuracy and validity of the chosen business strategies. This should take into account the probability of critical situations. It would be extremely naive to consider business opportunities without risk. The threat can come from competitors, from their own mistakes in the marketing and production policy mistakes in the selection of leading cadres. The risk may also be a technical process, which is capable of instantly "wear" any novelty. For any business it is important not to prevent the risk in general, and the foresight and reduced it to the minimum level. To reduce losses from possible failures provides for special procedures to help take into account the uncertainties and risks in all phases of the project. Knowing the types of risks and relevance can influence them reduce their impact on the effectiveness of the project. In other words, the expert has the following objectives:
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- identification of risks;
- risk assessment;
- definition of a way of reducing risk at every stage of the project;
- the organization of risk management.
Financial risks have arisen at the dawn of history, along with the emergence of money and relationships "borrower-lender." With the development of financial systems has expanded the range of risks, however, the problem of competent risk management is particularly acute faced participants of the financial market in the last 10-15 years. The explanation for this trend lies not so much in the specific cases of insolvency of individual companies and public finance crises in various countries, as the scale and speed of their emergence and spread.
Financial risk - a possible loss of the organization of their property, receive less revenue than planned, or the formation of unpredictable costs as a result of conducting financial and operational performance. These risks are quite diverse, and to manage them effectively, it is necessary to classify them.
Consider the main types of financial risk:
1. Market risk defines the probability of reducing the value of the asset due to changes in the value of currencies, equities, bonds, interest rates and others.
2. Credit (trade, bank) financial risks - the threat of partial or complete default partners or other parties to the agreement. In order to hedge against this risk, it is possible to draw the guarantors, which shall bear liability jointly with debtors.
3. Tax financial risks - are financial risks, which are likely losses resulting from changes in tax legislation, either due to incorrect calculation of the tax payments of the entrepreneur.
4. Liquidity risk - the loss of which are formed in the course of carrying out investment projects due to the significant change in assessment of their quality.
5. Operating financial risks - are formed as a result of technical errors in the production operations, emergencies, intentional and unintentional actions of personnel, equipment failures, etc.
In a market economy are constantly observed changes in commodity prices, securities, interest rates. Therefore, the securities market participants are exposed to the risk of losses due to adverse development conditions. This fact causes them first, predict the future situation, and second, to insure their actions.
Insurance or hedge is to neutralize the adverse fluctuations in market conditions for the investor / producer or consumer of a particular asset.
The purpose of hedging is to transfer the risk of price changes from one person to another. The first person called hedger, the second - a speculator. As a general rule, the higher the potential profits can be obtained only by taking on greater risk and share. many investors do not resort to such practices. Most individuals tends completely or to some extent eliminate the risk. In addition, those associated with the production process, are primarily interested in the planning of their future costs and revenues, and therefore willing to forgo the potential additional income for determining the prospects of its financial situation.
If we look at the world of finance, we see that the price of assets may change in a few seconds, the tools themselves are becoming more and more sophisticated, investment portfolio structure becomes complicated, and possible losses during the day can reach hundreds of millions dollars.
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Leading financial institutions a long time already come to realize that in order to prevent the negative consequences need daily quantification of potential losses on individual transactions, customers, divisions and directions of activity, as well the integral evaluation of the overall risk.
Purpose of hedging, in the embodiment of the use of this mechanism for risk management - is to eliminate the uncertainty of future cash flows, which allows you to have a solid knowledge of the value of future earnings as a result of commercial activities. In this regard it should be noted that the current practice of financial management interpretation of the hedge has a vast and covers the entire set of actions aimed at eliminating or reducing risks with the nature of occurrence of the external sources.
It is a fact that the greatest loss of the nation's economy carries as a result of price fluctuations of raw materials, especially for basic export products. There is also the loss of subtle nature displays, such as those associated with foreign exchange risk, which is not less important, and whose size is quite a significant amount within the limits of the national economy. The problem is compounded by the fact that the markets have consistently demonstrated the instability that many feel as if there is a crisis. At the same time the market, any uncertainty - the good, which allows you to extract additional benefits.
Turning to the use of hedging in the world, it should be noted: there is reason to believe that large companies or those where there are insightful and competent managers, hedge their delivery to 3-5 years, and maybe up to 7 years. This premise allows us to understand why many months and even years, the price of any commodity fall below the cost of its production, and to continue the trend of falling confidence.
It should be noted that the current hedging concept are widely used in the investment and also the region where this mechanism can not only protect the assets, but also provide opportunities for additional recovery proceeds. It is a fact that the use of hedge gives extremely good results, which can not be compared no the most effective investment portfolio. Hedging allows you to leave the space for extracting large profits, but at the same time, organizing effective protection against losses.
The above determines not only the relevance of the chosen topic, but also the goals and research problems.
The aim of this diploma thesis is the analysis of hedging as a way of financial risk management.
For achievement of this goal set the following tasks:
- to consider the essence and the concept of the hedging;
- to analyze the types and methods of hedging;
- to analyze the financial risk management using hedging at the concrete enterprise.
The practical importance of the work lies in the possibility of using the analyzed approaches to risk assessment and management in the current activities of the companies by means of hedging.
Chapter 1. Theoretical foundations of hedging as a way of financial risk management
