Risk and Uncertainty

INTEGRATED RISK MANAGEMENT
We have seen that the corporate face a whole range of risks. The contribution of each can't be isolated. This makes that the strategy to hedge the risk has an integrated approach.
The characteristics are:
*Analyse the risk management implies the diagnose of the corporate costs of risk. Thus, the risk can be managed by removing the risk (which is normally the expensive option) or risk can be tolerated (without imposing high cost)
*With the treatment of risk, the company hopes to make optimal post-loss and pre-loss investment decisions.
*The transaction cost. The risk can increase expected taxes, bankruptcy, frictional cost between shareholders and creditors due to the cost of debt increase ??? with risk management these frictional costs can be reduced.
*The individual risk can be isolated. A company has to hedge one risk in relation with the current exposure to other risks.
HEDGING INSTRUMENTS.
Since 1980 we can see that derivatives started to be used to hedge interest rates, foreign exchange, etc. As time goes by the risk is a wider and a complex concept, difficult to hedge only with derivatives. …