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财务风险管理外文文献翻译

财务风险管理外文文献翻译

文献出处: Sharifi, Omid. International Journal of Information, Business and Management6.2 (May 2014): 82-94.原文Financial Risk Management for Small and Medium Sized Enterprises(SMES)Omid SharifiMBA, Department of Commerce and Business Management,Kakatiya University, House No. 2-1-664, Sarawathi negar,1.ABSTRACTmedium sized Enterprises (SME) do also face business risks, Similar to large companies, Small and Mwhich in worst case can cause financial distress and lead to bankruptcy. However, although SME are a major part of the India and also international - economy, research mainly focused on risk management in large corporations. Therefore the aim of this paper is to suggest a possible mean for the risk identification, analysis and monitoring, which can be applied by SME to manage their internal financial risks. For this purpose the financial analysis, which has been used in research to identify indicators for firm bankruptcy, was chosen. The data required for the study was collected from Annual report of the Intec Capital Limited. For the period of five years, from 2008 to 2012.the findings showed the data and the overview can be used in SME risk management.Keywords: Annual report, Small and Medium sized Enterprises, Financial Risks, Risk Management.2.INTRUDUCTIONSmall and medium sized enterprises (SME) differ from large corporations among other aspects first of all in their size. Their importance in the economy however is large . SME sector of India is considered as the backbone of economy contributing to 45% of the industrial output, 40% of India’s exports, employing 60 million people,create 1.3 million jobs every year and produce more than 8000 quality products for the Indian and international markets. With approximately 30 million SMEs in India, 12 million people expected to join the workforce in next 3 years and the sector growing at a rate of 8% per year, Government of India is taking different measures so as to increase their competitiveness in the international market. There are several factors that have contributed towards the growth of Indian SMEs.Few of these include; funding of SMEs by local and foreign investors, the new technology that is used in the market is assisting SMEs add considerable value to their business, various trade directories and trade portals help facilitate trade between buyer and supplier and thus reducing the barrier to trade With this huge potential, backed up by strong government support; Indian SMEs continue to post their growth stories. Despite of this strong growth, there is huge potential amongst Indian SMEs that still remains untapped. Once this untapped potential becomes the source for growth of these units, there would be no stopping to India posting a GDP higher than that of US and China and becoming the world’s economic powerhouse.3. RESEARCH QUESTIONRisk and economic activity are inseparable. Every business decision and entrepreneurial act is connected with risk. This applies also to business of small andmedium sized enterprises as they are also facing several and often the same risks as bigger companies. In a real business environment with market imperfections they need to manage those risks in order to secure their business continuity and add additional value by avoiding or reducing transaction costs and cost of financial distress or bankruptcy. However, risk management is a challenge for most SME. In contrast to larger companies they often lack the necessary resources, with regard to manpower, databases and specialty of knowledge to perform a standardized and structured risk management. The result is that many smaller companies do not perform sufficient analysis to identify their risk. This aspect is exacerbated due to a lack in literature about methods for risk management in SME, as stated by Henschel: The two challenging aspects with regard to risk management in SME are therefore:1. SME differ from large corporations in many characteristics2. The existing research lacks a focus on risk management in SMEThe following research question will be central to this work:1.how can SME manage their internal financial risk?2.Which aspects, based on their characteristics, have to be taken into account for this?3.Which mean fulfils the requirements and can be applied to SME?4. LITERATURE REVIEWIn contrast to larger corporations, in SME one of the owners is often part of the management team. His intuition and experience are important for managing the company.Therefore, in small companies, the (owner-) manager is often responsible for many different tasks and important decisions. Most SME do not have the necessary resources to employ specialists on every position in the company. They focus on their core business and have generalists for the administrative functions. Behr and Guttler find that SME on average have equity ratios lower than 20%. The different characteristics of management, position on procurement and capital markets and the legal framework need to be taken into account when applying management instruments like risk management. Therefore the risk management techniques of larger corporations cannot easily be applied to SME.In practice it can therefore be observed that although SME are not facing less risks and uncertainties than largecompanies, their risk management differs from the practices in larger companies. The latter have the resources to employ a risk manager and a professional, structured and standardized risk management system. In contrast to that, risk management in SME differs in the degree of implementation and the techniques applied. Jonen & Simgen-Weber With regard to firm size and the use of risk management. Beyer, Hachmeister & Lampenius observe in a study from 2010 that increasing firm size among SME enhances the use of risk management. This observation matches with the opinion of nearly 10% of SME, which are of the opinion, that risk management is only reasonable in larger corporations. Beyer, Hachmeister & Lampenius find that most of the surveyed SME identify risks with help of statistics, checklists, creativity and scenario analyses. reveals similar findings and state that most companies rely on key figure systems for identifying and evaluating the urgency of business risks. That small firms face higher costs of hedging than larger corporations. This fact is reducing the benefits from hedging and therefore he advises to evaluate the usage of hedging for each firm individually. The lacking expertise to decide about hedges in SME is also identified by Eckbo, According to his findings, smaller companies often lack the understanding and management capacities needed to use those instruments.5. METHODOLOGY5.1. USE OF FINANCIAL ANALYSIS IN SME RISK MANAGEMENTHow financial analysis can be used in SME risk management?5.1.1 Development of financial risk overview for SMEThe following sections show the development of the financial risk overview. After presenting the framework, the different ratios will be discussed to finally presenta selection of suitable ratios and choose appropriate comparison data.5.1.2. Framework for financial risk overviewThe idea is to use a set of ratios in an overview as the basis for the financial risk management.This provides even more information than the analysis of historical data and allows reacting fast on critical developments and managing the identified risks. However not only the internal data can be used for the risk management. In additionto that also the information available in the papers can be used.Some of them state average values for the defaulted or bankrupt companies one year prior bankruptcy -and few papers also for a longer time horizon. Those values can be used as a comparison value to evaluate the risk situation of the company. For this an appropriate set of ratios has to be chosen.The ratios, which will be included in the overview and analysis sheet, should fulfill two main requirements. First of all they should match the main financial risks of the company in order to deliver significant information and not miss an important risk factor. Secondly the ratios need to be relevant in two different ways. On the one hand they should be applicable independently of other ratios. This means that they also deliver useful information when not used in a regression, as it is applied in many of the papers. On the other hand to be appropriate to use them, the ratios need to show a different development for healthy companies than for those under financial distress. The difference between the values of the two groups should be large enough to see into which the observed company belongs.5.1.3. Evaluation of ratios for financial risk overviewWhen choosing ratios from the different categories, it needs to be evaluated which ones are the most appropriate ones. For this some comparison values are needed in order to see whether the ratios show different values and developments for the two groups of companies. The most convenient source for the comparison values are the research papers as their values are based on large samples of annual reports and by providing average values outweigh outliers in the data. Altman shows a table with the values for 8 different ratios for the five years prior bankruptcy of which he uses 5, while Porporato & Sandin use 13 ratios in their model and Ohlson bases his evaluation on 9 figures and ratios [10]. Khong, Ong & Yap and Cerovac & Ivicic also show the difference in ratios between the two groups, however only directly before bankruptcy and not as a development over time [9]. Therefore this information is not as valuable as the others ([4][15]).In summary, the main internal financial risks in a SME should be covered by financial structure, liquidity and profitability ratios, which are the main categories ofratios applied in the research papers.Financial structureA ratio used in many of the papers is the total debt to total assets ratio, analyzing the financial structure of the company. Next to the papers of Altman, Ohlson and Porporato & Sandin also Khong, Ong & Yap and Cerovac & Ivicic show comparison values for this ratio. Those demonstrate a huge difference in size between the bankrupt and non-bankrupt groups.Figure 1: Development of total debt/ total assets ratioData source: Altman (1968), Porporato & Sandin (2007) and Ohlson (1980), author’s illustrationTherefore the information of total debt/total assets is more reliable and should rather be used for the overview. The other ratios analyzing the financial structure are only used in one of the papers and except for one the reference data only covers the last year before bankruptcy. Therefore a time trend cannot be detected and their relevance cannot be approved.Cost of debtThe costs of debt are another aspect of the financing risk. Porporato & Sandin use the variable interest payments/EBIT for measuring the debt costs. The variable shows how much of the income before tax and interest is spend to finance the debt. This variable also shows a clear trend when firms approach bankruptcy.LiquidityThe ratio used in all five papers to measure liquidity is the current ratio, showingthe relation between current liabilities and current assets (with slight differences in the definition). Instead of the current ratio, a liquidity ratio setting the difference between current assets and current liabilities, also defined as working capital, into relation with total assets could be used.Figure 2: Development of working capital / total assets ratioData source: Altman (1968) and Ohlson (1980); author’s illustratioBasically the ratio says whether the firm would be able to pay back all its’ current liabilities by using its’ current assets. In case it is not able to, which is wh en the liabilities exceed the assets, there is an insolvency risk.6. CRITICAL REVIEW AND CONCLUSIONWhen doing business, constantly decisions have to be made, whose outcome is not certain and thus connected with risk. In order to successfully cope with this uncertainty, corporate risk management is necessary in a business environment, which is influenced by market frictions. Different approaches and methods can be found for applying such a risk management. However, those mainly focus on large corporations, though they are the minority of all companies[13].Furthermore the approaches often require the use of statistical software and expert knowledge, which is most often not available in SME. They and their requirements for risk management have mainly been neglected [17][13].This also includes the internal financial risk management, which was in the focus of this paper. Due to the existing risks in SME and their differences to larger corporations as well as the lack of suitable risk management suggestions in theory, there is a need for a suggestion for a financial risk management in SME. Theaim was to find a possible mean for the risk identification, analysis and monitoring, which can be applied by SME to manage their internal financial risks. For this purpose the financial analysis, which has been used in research to identify indicators for firm bankruptcy, was chosen. Based on an examination and analysis of different papers, despite of their different models, many similarities in the applied ratios could be identified. In general the papers focus on three categories of risk, namely liquidity, profitability and solvency, which are in accordance to the main internal financial risks of SME. From the ratios the most appropriate ones with regard to their effectiveness in identifying risks.译文中小企业的财务风险管理奥米德沙利菲1、摘要中小型企业(SME)和大型企业一样,也面临着业务风险,在最糟糕的情况下,可能会导致金融危机,甚至破产。

中小企业的财务风险管理外文文献翻译2014年译文3000字

中小企业的财务风险管理外文文献翻译2014年译文3000字

中小企业的财务风险管理外文文献翻译2014年译文3000字Financial Risk Management for Small and Medium-Sized Enterprises (SMEs)Financial risk management is an essential aspect of business management。

particularly for small and medium-sized enterprises (SMEs)。

SMEs face numerous financial risks。

including credit risk。

market risk。

liquidity risk。

and nal risk。

which can significantly impact their financial stability and growth prospects。

Therefore。

the effective management of financial risks is crucialfor SMEs to survive and thrive in today's competitive business environment.One of the primary challenges for SMEs in managing financial risks is their limited resources and expertise。

Unlike large ns。

SMEs often lack the financial resources and specialized staff to develop and implement comprehensive risk management strategies。

As a result。

财务风险管理外文文献翻译原文+译文

财务风险管理外文文献翻译原文+译文

财务风险管理外文文献翻译原文+译文财务风险管理外文文献翻译原文+译文【2016年8月】目录原文:Financial Risk ManagementAlthough financial risk has increased significantly in recent years, risk and risk management are not contemporary issues. The result of increasingly global markets is that risk may originate with events thousands of miles away that have nothing to do with the domestic market. Information is available instantaneously, which means that change, and subsequent market reactions, occur very quickly. The economic climate and markets can be affected very quickly by changes in exchange rates, interest rates, and commodity prices. Counterparties can rapidly become problematic. As a result, it is important to ensure financial risks are identified and managed appropriately. Preparation is a key component of risk management.What Is Risk?Risk provides the basis for opportunity. The terms risk and exposure have subtle differences in their meaning. Risk refers to the probability of loss, while exposure is the possibility of loss, although they are often used interchangeably. Risk arises as a result of exposure.Exposure to financial markets affects most organizations, either directly or indirectly. When an organization has financial market exposure, there is a possibility of loss but also an opportunity for gain or profit. Financial market exposure may provide strategic or competitive benefits.Risk is the likelihood of losses resulting from events such aschanges in market prices. Events with a low probability of occurring, but that may result in a high loss, are particularly troublesome because they are often not anticipated. Put another way, risk is the probable variability of returns.Since it is not always possible or desirable to eliminate risk, understanding it is an important step in determining how to manage it. Identifying exposures and risks forms the basis for an appropriate financial risk management strategy.How Does Financial Risk?Financial risk arises through countless transactions of a financial nature, including sales and purchases, investments and loans, and various other business activities. It can arise as a result of legal transactions, new projects, mergers and acquisitions, debt financing, the energy component of costs, or through the activities of management, stakeholders, competitors, foreign governments, or weather. When financial prices change dramatically, it can increase costs, reduce revenues, or otherwise adversely impact the profitability of an organization. Financial fluctuations may make it more difficult to plan and budget, price goods and services, and allocate capital.There are three main sources of financial risk:1. Financial risks arising from an organization’s exposure to changes in market prices, such as interest rates, exchange rates, and commodity prices.2. Financial risks arising from the actions of, and transactions with, other organizations such as vendors, customers, and counterparties in derivatives transactions3. Financial risks resulting from internal actions or failures of the organization, particularly people, processes, and systems What Is Financial Risk Management?Financial risk management is a process to deal with the uncertainties resulting from financial markets. It involves assessing the financial risks facing an organization and developing management strategies consistent with internal priorities and policies. Addressing financial risks proactively may provide an organization with a competitive advantage. It also ensures that management, operational staff, stakeholders, and the board of directors are in agreement on key issues of risk.Managing financial risk necessitates making organizational decisions about risks that are acceptable versus those that are not. The passive strategy of taking no action is the acceptance of all risks by default.Organizations manage financial risk using a variety of strategies and products. It is important to understand how these products and strategies work to reduce risk within the context of the organization’s risk tolerance and objectives.Strategies for risk management often involve derivatives. Derivatives are traded widely among financial institutions and on organized exchanges. The value of derivatives contracts, such as futures, forwards, options, and swaps, is derived from the price of the underlying asset. Derivatives trade on interest rates, exchange rates, commodities, equity and fixed income securities, credit, and even weather.The products and strategies used by market participants to manage financial risk are the same ones used by speculators to increase leverage and risk. Although it can be argued that widespread use of derivatives increases risk, the existence of derivatives enables those who wish to reduce risk to pass it along to those who seek risk and its associated opportunities.The ability to estimate the likelihood of a financial loss ishighly desirable. However, standard theories of probability often fail in the analysis of financial markets. Risks usually do not exist in isolation, and the interactions of several exposures may have to be considered in developing an understanding of how financial risk arises. Sometimes, these interactions are difficult to forecast, since they ultimately depend on human behavior.The process of financial risk management is an ongoing one. Strategies need to be implemented and refined as the market and requirements change. Refinements may reflect changing expectations about market rates, changes to the business environment, or changing international political conditions, for example. In general, the process can be summarized as follows:1、Identify and prioritize key financial risks.2、Determine an appropriate level of risk tolerance.3、Implement risk management strategy in accordance with policy.4、Measure, report, monitor, and refine as needed.DiversificationFor many years, the riskiness of an asset was assessed based only on the variability of its returns. In contrast, modern portfolio theory considers not only an asset’s riskines s, but also its contribution to the overall riskiness of the portfolio to which it is added. Organizations may have an opportunity to reduce risk as a result ofrisk diversification.In portfolio management terms, the addition of individual components to a portfolio provides opportunities for diversification, within limits. A diversified portfolio contains assets whose returns are dissimilar, in other words, weakly or negatively correlated with one another. It is useful to think of theexposures of an organization as a portfolio and consider the impact of changes or additions on the potential risk of the total.Diversification is an important tool in managing financial risks. Diversification among counterparties may reduce the risk that unexpected events adversely impact the organization through defaults. Diversification among investment assets reduces the magnitude of loss if one issuer fails. Diversification of customers, suppliers, and financing sources reduces the possibility that an organization will have its business adversely affected by changes outside management’s control. Although the risk of loss still exists, diversification may reduce the opportunity for large adverse outcomes.Risk Management ProcessThe process of financial risk management comprises strategies that enable an organization to manage the risks associated with financial markets. Risk management is a dynamic process that should evolve with an organization and its business. It involves and impacts many parts of an organization including treasury, sales, marketing, legal, tax, commodity, and corporate finance.The risk management process involves both internal and external analysis. The first part of the process involves identifying and prioritizing the financial risks facing an organization and understanding their relevance. It may be necessary to examine the organization and its products, management, customers, suppliers, competitors, pricing, industry trends, balance sheet structure, and position in the industry. It is also necessary to consider stakeholders and their objectives and tolerance for risk.Once a clear understanding of the risks emerges, appropriate strategies can be implemented in conjunction with riskmanagement policy. For example, it might be possible to change where and how business is done, thereby reducing the。

财务风险管控英语缩写

财务风险管控英语缩写

财务风险管控英语缩写1. 引言财务风险是企业在经营过程中面临的一种不确定性,可能会对企业的财务状况和经营结果产生负面影响。

为了有效地管理和控制财务风险,人们普遍采用了一系列的英语缩写词汇来描述相关的概念和措施。

本文将介绍一些常用的财务风险管控英语缩写,并解释其含义和用途。

2. 财务风险管控英语缩写列表以下是一些常见的财务风险管控英语缩写词汇:2.1. ERM - Enterprise Risk ManagementERM是企业风险管理的英文缩写,是一种将风险管理纳入企业战略和运营决策中的综合性方法。

ERM旨在识别、评估和应对企业面临的各种风险,包括财务风险、市场风险、操作风险等。

通过实施ERM,企业可以更好地管理和控制财务风险。

2.2. FRA - Financial Risk AssessmentFRA是财务风险评估的英文缩写,指的是对企业财务风险进行评估和分析的过程。

通过FRA,企业可以了解其面临的财务风险程度和潜在的影响因素,有助于制定相应的风险管理和控制策略。

2.3. VAR - Value at RiskVAR是风险价值的英文缩写,是一种衡量财务风险的指标。

VAR表示在给定的置信水平下,企业可能遭受的最大亏损金额。

通过计算VAR,企业可以评估其财务风险承受能力,并采取相应的措施来控制风险。

2.4. IPO - Initial Public OfferingIPO是首次公开发行的英文缩写,指的是企业将股份首次向公众出售的过程。

IPO可能会带来一定的财务风险,包括市场波动、股价下跌等。

因此,企业在进行IPO时需要进行财务风险管理和控制。

2.5. CFO - Chief Financial OfficerCFO是首席财务官的英文缩写,是企业负责财务管理和风险管控的高级管理人员。

CFO负责制定和执行财务战略,管理财务风险,确保企业的财务稳定和可持续发展。

2.6. SOX - Sarbanes-Oxley ActSOX是萨班斯-奥克斯利法案的英文缩写,是美国国会于2002年通过的一项法律。

中小企业的财务风险管理外文文献翻译2014年译文3000字

中小企业的财务风险管理外文文献翻译2014年译文3000字

文献出处:Sharifi, Omid. International Journal of Information, Business and Management 6.2 (May 2014): 82-94.2014年,最新文献翻译,译文3000多字原文Financial Risk Management for Small and Medium SizedEnterprises(SMES)Omid SharifiMBA, Department of Commerce and Business Management,Kakatiya University, House No. 2-1-664, Sarawathi negar,Gopalpur, Hanamakonda, A.P., IndiaE-Mail: **********************, Phone: 0091- 8808173339RESEARCH QUESTIONRisk and economic activity are inseparable. Every business decision and entrepreneurial act is connected with risk. This applies also to business of small and medium sized enterprises as they are also facing several and often the same risks as bigger companies. In a real business environment with market imperfections they need to manage those risks in order to secure their business continuity and add additional value by avoiding or reducing transaction costs and cost of financial distress or bankruptcy. However, risk management is a challenge for most SME. In contrast to larger companies they often lack the necessary resources, with regard to manpower, databases and specialty of knowledge to perform a standardized and structured risk management. The result is that many smaller companies do not perform sufficient analysis to identify their risk. This aspect is exacerbated due to a lack in literature about methods for risk management in SME, as stated by Henschel: The two challenging aspects with regard to risk management in SME are therefore:1. SME differ from large corporations in many characteristics2. The existing research lacks a focus on risk management in SMEThe following research question will be central to this work:1.how can SME manage their internal financial risk?2.Which aspects, based on their characteristics, have to be taken into account for this?3.Which mean fulfils the requirements and can be applied to SME? LITERATURE REVIEWIn contrast to larger corporations, in SME one of the owners is often part of the management team. His intuition and experience are important for managing the company.Therefore, in small companies, the (owner-) manager is often responsible for many different tasks and important decisions. Most SME do not have the necessary resources to employ specialists on every position in the company. They focus on their core business and have generalists for the administrative functions. Behr and Guttler find that SME on average have equity ratios lower than 20%. The different characteristics of management, position on procurement and capital markets and the legal framework need to be taken into account when applying management instruments like risk management. Therefore the risk management techniques of larger corporations cannot easily be applied to SME.In practice it can therefore be observed that although SME are not facing less risks and uncertainties than large companies, their risk management differs from the practices in larger companies. The latter have the resources to employ a risk manager and a professional, structured and standardized risk management system. In contrast to that, risk management in SME differs in the degree of implementation and the techniques applied. Jonen & Simgen-Weber With regard to firm size and the use of risk management. Beyer, Hachmeister & Lampenius observe in a study from 2010 that increasing firm size among SME enhances the use of risk management. This observation matches with the opinion of nearly 10% of SME, which are of the opinion, that risk management is only reasonable in larger corporations. Beyer,Hachmeister & Lampenius find that most of the surveyed SME identify risks with help of statistics, checklists, creativity and scenario analyses. reveals similar findings and state that most companies rely on key figure systems for identifying and evaluating the urgency of business risks. That small firms face higher costs of hedging than larger corporations. This fact is reducing the benefits from hedging and therefore he advises to evaluate the usage of hedging for each firm individually. The lacking expertise to decide about hedges in SME is also identified by Eckbo, According to his findings, smaller companies often lack the understanding and management capacities needed to use those instruments.METHODOLOGYUSE OF FINANCIAL ANALYSIS IN SME RISK MANAGEMENTHow financial analysis can be used in SME risk management?Development of financial risk overview for SMEThe following sections show the development of the financial risk overview. After presenting the framework, the different ratios will be discussed to finally present a selection of suitable ratios and choose appropriate comparison data. Framework for financial risk overviewThe idea is to use a set of ratios in an overview as the basis for the financial risk management.This provides even more information than the analysis of historical data and allows reacting fast on critical developments and managing the identified risks. However not only the internal data can be used for the risk management. In addition to that also the information available in the papers can be used.Some of them state average values for the defaulted or bankrupt companies one year prior bankruptcy -and few papers also for a longer time horizon. Those values can be used as a comparison value to evaluate the risk situation of the company. For this an appropriate set of ratios has to be chosen.The ratios, which will be included in the overview and analysis sheet, should fulfill two main requirements. First of all they should match the main financial risks of the company in order to deliver significant information and not miss an importantrisk factor. Secondly the ratios need to be relevant in two different ways. On the one hand they should be applicable independently of other ratios. This means that they also deliver useful information when not used in a regression, as it is applied in many of the papers. On the other hand to be appropriate to use them, the ratios need to show a different development for healthy companies than for those under financial distress. The difference between the values of the two groups should be large enough to see into which the observed company belongs.Evaluation of ratios for financial risk overviewWhen choosing ratios from the different categories, it needs to be evaluated which ones are the most appropriate ones. For this some comparison values are needed in order to see whether the ratios show different values and developments for the two groups of companies. The most convenient source for the comparison values are the research papers as their values are based on large samples of annual reports and by providing average values outweigh outliers in the data. Altman shows a table with the values for 8 different ratios for the five years prior bankruptcy of which he uses 5, while Porporato & Sandin use 13 ratios in their model and Ohlson bases his evaluation on 9 figures and ratios [10]. Khong, Ong & Yap and Cerovac & Ivicic also show the difference in ratios between the two groups, however only directly before bankruptcy and not as a development over time [9]. Therefore this information is not as valuable as the others ([4][15]).In summary, the main internal financial risks in a SME should be covered by financial structure, liquidity and profitability ratios, which are the main categories of ratios applied in the research papers.Financial structureA ratio used in many of the papers is the total debt to total assets ratio, analyzing the financial structure of the company. Next to the papers of Altman, Ohlson and Porporato & Sandin also Khong, Ong & Yap and Cerovac & Ivicic show comparison values for this ratio. Those demonstrate a huge difference in size between the bankrupt and non-bankrupt groups.Figure 1: Development of total debt/ total assets ratioData source: Altman (1968), Porporato & Sandin (2007) and Ohlson (1980), author’s illustrationTherefore the information of total debt/total assets is more reliable and should rather be used for the overview. The other ratios analyzing the financial structure are only used in one of the papers and except for one the reference data only covers the last year before bankruptcy. Therefore a time trend cannot be detected and their relevance cannot be approved.Cost of debtThe costs of debt are another aspect of the financing risk. Porporato & Sandin use the variable interest payments/EBIT for measuring the debt costs. The variable shows how much of the income before tax and interest is spend to finance the debt. This variable also shows a clear trend when firms approach bankruptcy.LiquidityThe ratio used in all five papers to measure liquidity is the current ratio, showing the relation between current liabilities and current assets (with slight differences in the definition). Instead of the current ratio, a liquidity ratio setting the difference between current assets and current liabilities, also defined as working capital, into relation with total assets could be used.Figure 2: Development of working capital / total assets ratioData source: Altman (1968) and Ohlson (1980); author’s illustratioBasically the ratio says whether the firm would be able to pay back all its’ current liabilities by using its’ current assets. In case it is not able to, which is when the liabilities exceed the assets, there is an insolvency risk.ProfitabilityFor measuring the firms’ profitability or productivity a wide range of ratios is used in the different papers. The ratio sales /total assets is used as well by as also Porporato & Sandin (they use total assets / sales, which can easily be transformed to be comparable) and therefore available as a time series.Figure 3: Development of sales / total assets ratioData source: Altman (1968) and Porporato & Sandin (2007), author’s illustratioThe remaining ratios measuring the last period’s profitability are net income / equity, EBIT /debt and net income or EBIT / total assets.The last groups of profitability ratios, which can be found in the literature, are those focusing on retained earnings of the firms. These measures show the cumulated profitability of the firm over time.Retained earnings ratios measure the buffer of funds the company was able to earn over time and which can be used in times of crisis to balance losses.译文中小企业的财务风险管理Omid Sharifi研究问题风险与经济活动是密不可分的。

财务风险管理中英文对照外文翻译文献

财务风险管理中英文对照外文翻译文献

中英文资料翻译Financial Risk ManagementAlthough financial risk has increased significantly in recent years, risk and risk management are not contemporary issues. The result of increasingly global markets is that risk may originate with events thousands of miles away that have nothing to do with the domestic market. Information is available instantaneously, which means that change, and subsequent market reactions, occur very quickly. The economic climate and markets can be affected very quickly by changes in exchange rates, interest rates, and commodity prices. Counterparties can rapidly become problematic. As a result, it is important to ensure financial risks are identified and managed appropriately. Preparation is a key component of risk management.What Is Risk?Risk provides the basis for opportunity. The terms risk and exposure have subtle differences in their meaning. Risk refers to the probability of loss, while exposure is the possibility of loss, although they are often used interchangeably. Risk arises as a result of exposure.Exposure to financial markets affects most organizations, either directly or indirectly. When an organization has financial market exposure, there is a possibility of loss but also an opportunity for gain or profit. Financial market exposure may provide strategic or competitive benefits.Risk is the likelihood of losses resulting from events such as changes in market prices. Events with a low probability of occurring, but that may result in a high loss, are particularly troublesome because they are often not anticipated. Put another way, risk is the probable variability of returns.Since it is not always possible or desirable to eliminate risk, understanding it is an important step in determining how to manage it. Identifying exposures and risks forms the basis for an appropriate financial risk management strategy.How Does Financial Risk?Financial risk arises through countless transactions of a financial nature, including sales and purchases, investments and loans, and various other business activities. It can arise as a result of legal transactions, new projects, mergers and acquisitions, debt financing, the energy component of costs, or through the activities of management, stakeholders, competitors, foreign governments, or weather. When financial prices change dramatically, it can increase costs, reduce revenues, or otherwise adversely impact the profitability of an organization. Financial fluctuations may make it more difficult to plan and budget, price goods and services, and allocate capital.There are three main sources of financial risk:1. Financial risks arising from an organization’s exposure to changes in market prices, such as interest rates, exchange rates, and commodity prices.2. Financial risks arising from the actions of, and transactions with, other organizations such as vendors, customers, and counterparties in derivatives transactions3. Financial risks resulting from internal actions or failures of the organization, particularly people, processes, and systemsWhat Is Financial Risk Management?Financial risk management is a process to deal with the uncertainties resulting from financial markets. It involves assessing the financial risks facing an organization and developing management strategies consistent with internal priorities and policies. Addressing financial risks proactively may provide an organization with a competitive advantage. It also ensures that management, operational staff, stakeholders, and the board of directors are in agreement on key issues of risk.Managing financial risk necessitates making organizational decisions about risks that are acceptable versus those that are not. The passive strategy of taking no action is the acceptance of all risks by default.Organizations manage financial risk using a variety of strategies and products. It is important to understand how these products and strategies work to reduce riskwithin the context of the organization’s risk tolerance and objectives.Strategies for risk management often involve derivatives. Derivatives are traded widely among financial institutions and on organized exchanges. The value of derivatives contracts, such as futures, forwards, options, and swaps, is derived from the price of the underlying asset. Derivatives trade on interest rates, exchange rates, commodities, equity and fixed income securities, credit, and even weather.The products and strategies used by market participants to manage financial risk are the same ones used by speculators to increase leverage and risk. Although it can be argued that widespread use of derivatives increases risk, the existence of derivatives enables those who wish to reduce risk to pass it along to those who seek risk and its associated opportunities.The ability to estimate the likelihood of a financial loss is highly desirable. However, standard theories of probability often fail in the analysis of financial markets. Risks usually do not exist in isolation, and the interactions of several exposures may have to be considered in developing an understanding of how financial risk arises. Sometimes, these interactions are difficult to forecast, since they ultimately depend on human behavior.The process of financial risk management is an ongoing one. Strategies need to be implemented and refined as the market and requirements change. Refinements may reflect changing expectations about market rates, changes to the business environment, or changing international political conditions, for example. In general, the process can be summarized as follows:1、Identify and prioritize key financial risks.2、Determine an appropriate level of risk tolerance.3、Implement risk management strategy in accordance with policy.4、Measure, report, monitor, and refine as needed.DiversificationFor many years, the riskiness of an asset was assessed based only on the variability of its returns. In contrast, modern portfolio theory considers not only an asset’s riskiness, but also its contribution to the overall riskiness of the portfolio towhich it is added. Organizations may have an opportunity to reduce risk as a result of risk diversification.In portfolio management terms, the addition of individual components to a portfolio provides opportunities for diversification, within limits. A diversified portfolio contains assets whose returns are dissimilar, in other words, weakly or negatively correlated with one another. It is useful to think of the exposures of an organization as a portfolio and consider the impact of changes or additions on the potential risk of the total.Diversification is an important tool in managing financial risks. Diversification among counterparties may reduce the risk that unexpected events adversely impact the organization through defaults. Diversification among investment assets reduces the magnitude of loss if one issuer fails. Diversification of customers, suppliers, and financing sources reduces the possibility that an organization will have its business adversely affected by changes outside management’s control. Although the risk of loss still exists, diversification may reduce the opportunity for large adverse outcomes.Risk Management ProcessThe process of financial risk management comprises strategies that enable an organization to manage the risks associated with financial markets. Risk management is a dynamic process that should evolve with an organization and its business. It involves and impacts many parts of an organization including treasury, sales, marketing, legal, tax, commodity, and corporate finance.The risk management process involves both internal and external analysis. The first part of the process involves identifying and prioritizing the financial risks facing an organization and understanding their relevance. It may be necessary to examine the organization and its products, management, customers, suppliers, competitors, pricing, industry trends, balance sheet structure, and position in the industry. It is also necessary to consider stakeholders and their objectives and tolerance for risk.Once a clear understanding of the risks emerges, appropriate strategies can be implemented in conjunction with risk management policy. For example, it might bepossible to change where and how business is done, thereby reducing the organization’s exposure and risk. Alternatively, existing exposures may be managed with derivatives. Another strategy for managing risk is to accept all risks and the possibility of losses.There are three broad alternatives for managing risk:1. Do nothing and actively, or passively by default, accept all risks.2. Hedge a portion of exposures by determining which exposures can and should be hedged.3. Hedge all exposures possible.Measurement and reporting of risks provides decision makers with information to execute decisions and monitor outcomes, both before and after strategies are taken to mitigate them. Since the risk management process is ongoing, reporting and feedback can be used to refine the system by modifying or improving strategies.An active decision-making process is an important component of risk management. Decisions about potential loss and risk reduction provide a forum for discussion of important issues and the varying perspectives of stakeholders.Factors that Impact Financial Rates and PricesFinancial rates and prices are affected by a number of factors. It is essential to understand the factors that impact markets because those factors, in turn, impact the potential risk of an organization.Factors that Affect Interest RatesInterest rates are a key component in many market prices and an important economic barometer. They are comprised of the real rate plus a component for expected inflation, since inflation reduces the purchasing power of a lender’s assets .The greater the term to maturity, the greater the uncertainty. Interest rates are also reflective of supply and demand for funds and credit risk.Interest rates are particularly important to companies and governments because they are the key ingredient in the cost of capital. Most companies and governments require debt financing for expansion and capital projects. When interest rates increase, the impact can be significant on borrowers. Interest rates also affect prices in otherfinancial markets, so their impact is far-reaching.Other components to the interest rate may include a risk premium to reflect the creditworthiness of a borrower. For example, the threat of political or sovereign risk can cause interest rates to rise, sometimes substantially, as investors demand additional compensation for the increased risk of default.Factors that influence the level of market interest rates include:1、Expected levels of inflation2、General economic conditions3、Monetary policy and the stance of the central bank4、Foreign exchange market activity5、Foreign investor demand for debt securities6、Levels of sovereign debt outstanding7、Financial and political stabilityYield CurveThe yield curve is a graphical representation of yields for a range of terms to maturity. For example, a yield curve might illustrate yields for maturity from one day (overnight) to 30-year terms. Typically, the rates are zero coupon government rates.Since current interest rates reflect expectations, the yield curve provides useful information about the market’s expectations of future interest rates. Implied interest rates for forward-starting terms can be calculated using the information in the yield curve. For example, using rates for one- and two-year maturities, the expected one-year interest rate beginning in one year’s time can be determined.The shape of the yield curve is widely analyzed and monitored by market participants. As a gauge of expectations, it is often considered to be a predictor of future economic activity and may provide signals of a pending change in economic fundamentals.The yield curve normally slopes upward with a positive slope, as lenders/investors demand higher rates from borrowers for longer lending terms. Since the chance of a borrower default increases with term to maturity, lenders demand to be compensated accordingly.Interest rates that make up the yield curve are also affected by the expected rate of inflation. Investors demand at least the expected rate of inflation from borrowers, in addition to lending and risk components. If investors expect future inflation to be higher, they will demand greater premiums for longer terms to compensate for this uncertainty. As a result, the longer the term, the higher the interest rate (all else being equal), resulting in an upward-sloping yield curve.Occasionally, the demand for short-term funds increases substantially, and short-term interest rates may rise above the level of longer term interest rates. This results in an inversion of the yield curve and a downward slope to its appearance. The high cost of short-term funds detracts from gains that would otherwise be obtained through investment and expansion and make the economy vulnerable to slowdown or recession. Eventually, rising interest rates slow the demand for both short-term and long-term funds. A decline in all rates and a return to a normal curve may occur as a result of the slowdown.财务风险管理尽管近年来金融风险大大增加,但风险和风险管理不是当代的主要问题。

财务风险管理外文文献翻译译文

财务风险管理外文文献翻译译文

Financial Risk ManagementAlthough financial risk has increased significantly in recent years, risk and risk management are not contemporary issues. The result of increasingly global markets is that risk may originate with events thousands of miles away that have nothing to do with the domestic market. Information is available instantaneously, which means that change, and subsequent market reactions, occur very quickly. The economic climate and markets can be affected very quickly by changes in exchange rates, interest rates, and commodity prices. Counterparties can rapidly become problematic. As a result, it is important to ensure financial risks are identified and managed appropriately. Preparation is a key component of risk management.What Is Risk?Risk provides the basis for opportunity. The terms risk and exposure have subtle differences in their meaning. Risk refers to the probability of loss, while exposure is the possibility of loss, although they are often used interchangeably. Risk arises as a result of exposure.Exposure to financial markets affects most organizations, either directly or indirectly. When an organization has financial market exposure, there is a possibility of loss but also an opportunity for gain or profit. Financial market exposure may provide strategic or competitive benefits.Risk is the likelihood of losses resulting from events such as changes in market prices. Events with a low probability of occurring, but that may result in a high loss, are particularly troublesome because they are often not anticipated. Put another way, risk is the probable variability of returns.Since it is not always possible or desirable to eliminate risk,understanding it is an important step in determining how to manage it. Identifying exposures and risks forms the basis for an appropriate financial risk management strategy.How Does Financial Risk?Financial risk arises through countless transactions of a financial nature, including sales and purchases, investments and loans, and various other business activities. It can arise as a result of legal transactions, new projects, mergers and acquisitions, debt financing, the energy component of costs, or through the activities of management, stakeholders, competitors, foreign governments, or weather. When financial prices change dramatically, it can increase costs, reduce revenues, or otherwise adversely impact the profitability of an organization. Financial fluctuations may make it more difficult to plan and budget, price goods and services, and allocate capital.There are three main sources of financial risk:1. Financial risks arising from an organization’s exposure to changes in market prices, such as interest rates, exchange rates, and commodity prices.2. Financial risks arising from the actions of, and transactions with, other organizations such as vendors, customers, and counterparties in derivatives transactions3. Financial risks resulting from internal actions or failures of the organization, particularly people, processes, and systemsWhat Is Financial Risk Management?Financial risk management is a process to deal with the uncertainties resulting from financial markets. It involves assessing the financial risks facing an organization and developing management strategies consistent withinternal priorities and policies. Addressing financial risks proactively may provide an organization with a competitive advantage. It also ensures that management, operational staff, stakeholders, and the board of directors are in agreement on key issues of risk.Managing financial risk necessitates making organizational decisions about risks that are acceptable versus those that are not. The passive strategy of taking no action is the acceptance of all risks by default.Organizations manage financial risk using a variety of strategies and products. It is important to understand how these products and strategies work to reduce risk within the context of the organization’s risk tolerance and objectives.Strategies for risk management often involve derivatives. Derivatives are traded widely among financial institutions and on organized exchanges. The value of derivatives contracts, such as futures, forwards, options, and swaps, is derived from the price of the underlying asset. Derivatives trade on interest rates, exchange rates, commodities, equity and fixed income securities, credit, and even weather.The products and strategies used by market participants to manage financial risk are the same ones used by speculators to increase leverage and risk. Although it can be argued that widespread use of derivatives increases risk, the existence of derivatives enables those who wish to reduce risk to pass it along to those who seek risk and its associated opportunities.The ability to estimate the likelihood of a financial loss is highly desirable. However, standard theories of probability often fail in the analysis of financial markets. Risks usually do not exist in isolation, and theinteractions of several exposures may have to be considered in developing an understanding of how financial risk arises. Sometimes, these interactions are difficult to forecast, since they ultimately depend on human behavior.The process of financial risk management is an ongoing one. Strategies need to be implemented and refined as the market and requirements change. Refinements may reflect changing expectations about market rates, changes to the business environment, or changing international political conditions, for example. In general, the process can be summarized as follows:1、Identify and prioritize key financial risks.2、Determine an appropriate level of risk tolerance.3、Implement risk management strategy in accordance with policy.4、Measure, report, monitor, and refine as needed.DiversificationFor many years, the riskiness of an asset was assessed based only on the variability of its returns. In contrast, modern portfolio theory considers not only an asset’s riskiness, but also its contribution to the overall riskiness of the portfolio to which it is added. Organizations may have an opportunity to reduce risk as a result of risk diversification.In portfolio management terms, the addition of individual components to a portfolio provides opportunities for diversification, within limits. A diversified portfolio contains assets whose returns are dissimilar, in other words, weakly or negatively correlated with one another. It is useful to think of the exposures of an organization as a portfolio and consider the impact of changes or additions on the potential risk of the total.Diversification is an important tool in managing financial risks.Diversification among counterparties may reduce the risk that unexpected events adversely impact the organization through defaults. Diversification among investment assets reduces the magnitude of loss if one issuer fails. Diversification of customers, suppliers, and financing sources reduces the possibility that an organization will have its business adversely affected by changes outside management’s control. Although the risk of loss still exists, diversification may reduce the opportunity for large adverse outcomes.Risk Management ProcessThe process of financial risk management comprises strategies that enable an organization to manage the risks associated with financial markets. Risk management is a dynamic process that should evolve with an organization and its business. It involves and impacts many parts of an organization including treasury, sales, marketing, legal, tax, commodity, and corporate finance.The risk management process involves both internal and external analysis. The first part of the process involves identifying and prioritizing the financial risks facing an organization and understanding their relevance. It may be necessary to examine the organization and its products, management, customers, suppliers, competitors, pricing, industry trends, balance sheet structure, and position in the industry. It is also necessary to consider stakeholders and their objectives and tolerance for risk.Once a clear understanding of the risks emerges, appropriate strategies can be implemented in conjunction with risk management policy. For example, it might be possible to change where and how business is done, thereby reducing the organization’s exposure and risk. Alternatively, existingexposures may be managed with derivatives. Another strategy for managing risk is to accept all risks and the possibility of losses.There are three broad alternatives for managing risk:1. Do nothing and actively, or passively by default, accept all risks.2. Hedge a portion of exposures by determining which exposures can and should be hedged.3. Hedge all exposures possible.Measurement and reporting of risks provides decision makers with information to execute decisions and monitor outcomes, both before and after strategies are taken to mitigate them. Since the risk management process is ongoing, reporting and feedback can be used to refine the system by modifying or improving strategies.An active decision-making process is an important component of risk management. Decisions about potential loss and risk reduction provide a forum for discussion of important issues and the varying perspectives of stakeholders.Factors that Impact Financial Rates and PricesFinancial rates and prices are affected by a number of factors. It is essential to understand the factors that impact markets because those factors, in turn, impact the potential risk of an organization.Factors that Affect Interest RatesInterest rates are a key component in many market prices and an important economic barometer. They are comprised of the real rate plus a component for expected inflation, since inflation reduces the purchasing power of a lender’s assets .The greater the term to maturity, the greater theuncertainty. Interest rates are also reflective of supply and demand for funds and credit risk.Interest rates are particularly important to companies and governments because they are the key ingredient in the cost of capital. Most companies and governments require debt financing for expansion and capital projects. When interest rates increase, the impact can be significant on borrowers. Interest rates also affect prices in other financial markets, so their impact is far-reaching.Other components to the interest rate may include a risk premium to reflect the creditworthiness of a borrower. For example, the threat of political or sovereign risk can cause interest rates to rise, sometimes substantially, as investors demand additional compensation for the increased risk of default.Factors that influence the level of market interest rates include:1、Expected levels of inflation2、General economic conditions3、Monetary policy and the stance of the central bank4、Foreign exchange market activity5、Foreign investor demand for debt securities6、Levels of sovereign debt outstanding7、Financial and political stabilityYield CurveThe yield curve is a graphical representation of yields for a range of terms to maturity. For example, a yield curve might illustrate yields for maturity from one day (overnight) to 30-year terms. Typically, the rates are zero coupon government rates.Since current interest rates reflect expectations, the yield curve provides useful information about the market’s expectations of future interest rates. Implied interest rates for forward-starting terms can be calculated using the information in the yield curve. For example, using rates for one- and two-year maturities, the expected one-year interest rate beginning in one year’s time can be determined.The shape of the yield curve is widely analyzed and monitored by market participants. As a gauge of expectations, it is often considered to be a predictor of future economic activity and may provide signals of a pending change in economic fundamentals.The yield curve normally slopes upward with a positive slope, as lenders/investors demand higher rates from borrowers for longer lending terms. Since the chance of a borrower default increases with term to maturity, lenders demand to be compensated accordingly.Interest rates that make up the yield curve are also affected by the expected rate of inflation. Investors demand at least the expected rate of inflation from borrowers, in addition to lending and risk components. If investors expect future inflation to be higher, they will demand greater premiums for longer terms to compensate for this uncertainty. As a result, the longer the term, the higher the interest rate (all else being equal), resulting in an upward-sloping yield curve.Occasionally, the demand for short-term funds increases substantially, and short-term interest rates may rise above the level of longer term interest rates. This results in an inversion of the yield curve and a downward slope to its appearance. The high cost of short-term funds detracts from gains that would otherwise be obtained through investment and expansion and make the economyvulnerable to slowdown or recession. Eventually, rising interest rates slow the demand for both short-term and long-term funds. A decline in all rates and a return to a normal curve may occur as a result of the slowdown.财务风险管理尽管近年来金融风险大大增加,但风险和风险管理不是当代的主要问题。

财务风险外文原文

财务风险外文原文

Political and Financial Risks and Their Mitigation Measures in Public Private Partnershipsby LIAO BOJING CHAPTER 4FINANCIAL RISKS AND THEIR MITIGATION MEASURES4.1 Interest Rate RiskIn construction project finance ventures, there is always the risk of fluctuations in interest rates. Credit is always granted with a variable rate, due to the long life of such PPP projects. In addition, unlike exchange rate risk, interest rate risk indiscriminately strikes both domestic and international projects as well as ventures with multi-currency cash flows. Sponsors and their advisors have to decide whether or not to cover against this risk, a decision that is not exactly identical throughout the life of the project (Gatti, 2008). The mitigation measures for interest rate risk mainly include:(1)Adopting an appropriate multicurrency portfolio, e.g., a dual-currency contract, which uses a foreign currency of lower rate interest, and a local currency for repayment of the principal. Various currencies have different interest rates. The private sector and its advisers must make the effects on making an ideal combination of a variety of foreign currency and cooperating with the banks so as to reduce interest rate risk. Dual-currency is to use a lower rate currency for interest accrual, and choose the local currency for repayment of the principal.(2)Balancing the floating rate and fixed-rate debt in the financing structure. When there is a lack of capital supplies in the international finance market, the interest rate will rise. Under this situation, the private sector should choose a fixed rate. When there is a surplus of capital supplies in the international finance market, the interest rate tends to go down. Therefore, a floating rate should be selected. The balanced proportion on the fixed rate and floating rate will reduce the risk and profit lost.(3)Seeking a reasonable interest rate that is guaranteed by the host government. The host government will provide a guaranteed interest rate to the private sector. During the project period,if the interest rate exceeds the required percentage, the private sector will be compensated. For example, for the north-to-south highway project in Malaysia, the project company, PLUS, received a guaranteed interest rate from the Malaysian government: if the growth of the interest rate exceeds 20%, the project company will obtain redressment of the margins from the compensation package.(4)Using interest rate derivatives(e.g., forward rate agreements, interest rate futures, swaps, options ) to insure against future interest rate fluctuations so as to reduce the interest rate risk.Forward Rate Agreements (FRA)With an FRA, the buyer pledges to pay the seller interest accrued on the principal at a pre-agreed rate, starting at a future date, and for certain period of time. The FRA buyer sets the future rate and is covered from interest rate risk. If in fact the future rate is higher than what was agreed on in thecontract, the seller of the forward rate agreement pays the difference between the two rates to the buyer. Conversely, it will be paid by the buyer if the future rate proves to be lower than the pre-set rate.Interest Rate FuturesA future is a forward agreement in which all contractual provisions are standardized. Due to this fact, futures differ from forward contracts in light of their lower risk for counterparties and greater market liquidity. In project finance ventures, interest rate futures can be used to curb the negative effect ofa rise in interest rates on a loan raised by the private sector.Interest Rate SwapIn their simplest form, interest rate swaps are a periodic exchange of fixed rate streams against floating rate streams (usually indexed to LIBOR) for a given time horizon. In an interest rate swap, one of the counterparty agrees to pay either a fixed or floating rate denominated in a particular currency to the other counterparty. In such a way, the financial cost can be well locked.Interest Rate Option (caps/floors/collars)Options are contracts that allow (but do not oblige) the buyer to purchase(call option) or sell (put option) a commodity or a financial asset at a fixed price (strike price) at a future date in exchange for payment of a premium. In project finance deals, interest rate options are used for protecting the private sector’s cash flows from interest rate risk.(5)Using bond financing in which the interest rates fixed to reduce the risk of future interest rate increase. Bonds can have fixed and floating rates of interest. In this regard, bond financing is often used in reducing interest cost and in mitigating the interest rate fluctuation risk. However, bond issuance is a long and expensive process compared to acquiring bank loans.(6)Using the supplier's credit to reduce the amount of debt and get the debt at a lower interest rate Interest rates of supplier's credit is generally lower than that in capital lending market under the same conditions, and interest rate differentials can be gained from the exporting country government subsidy.(7)Acquisition of loans and assistance from international financial institutions (e.g., Asian Development Bank and World Bank) to make the projects secure and less risky. These kinds of banks are multilateral development financial institutions. Their mission is to help developing member countries to reduce poverty and improve the quality of life of their citizens. Take Asia Development Bank (ADB) as an example. It aims to promote economic and social development in Asian and Pacific countries through loans and technical assistance. From this perspective, finance projects from these institutions can be secured and are less risky.(8)Predicting the changing trend of future interest rate and making the corresponding financing preparation. Predict the trend of the future interest rate through collecting multi information. For example, ininternational financial markets with a lackof capital supply, the interest rate will gradually increase so that fixing the interest rate is appropriate; whereas whenthere is an excess supply of capital in the markets, the interest rates tend to decline so the floating rates is better.4.2 Inflation RiskIn practice, the biggest problem arising from economic mismanagement is inflation, especially for a foreign firm with assets in a country. With high inflation, the value of the cash flows received from assets will fall as the country’s currency depreciates on the foreign exchange market. The likelihood of this occurring decreases the attractiveness of foreign investment in the country (Kapila1 and Hendrickson 2001). Inflation risk derives from the fact that most contracts between SPVs and their commercial counterparties are based on revision mechanisms for rates or installments based on the behavior ofa given price index. Both industrial and financial costs and revenues are impacted by inflation risk.The mitigation measures for inflation risk mainly include:(1)Increasing the proportion of hardcurrencies in the cash flow. In general, the best way for the private sector to mitigate inflation risk is by maximizing the proportion of cash flows in hard currencies to be channeled through off-shore mechanisms.(2)Indexing the price of the service or productfrom the project to the inflation rate. Prescribe the relevant items in concession agreements and combine the price of the product and service with the price index or inflation rate of the host country. Using the pricing adjustment formula, which consists ofinflation rate factors, as the method for checking the pricing in the future terms, will allow one to adjust pricing when the inflation rate’s movement exceeds a certain range, or accordingly raise the fees, or extend the permitted period in order to guarantee sufficient cash flow to pay off debts and to assure the investment profit.(3)Including a price adjustment clause inthe long term purchase contract. If the Inflation Index adjust the price of products, the Project Company could increase charging standards on their own based on CPI. However,the foundation of the adjustment must be established by strict accounting and be effective after the government’s approval.(4)Drawing up an inflation swap to transfer inflation risk through an exchange of cash flows. To cover against inflation risk, a swap contract is signed between two parties. In an inflation swap, the private sector pays a fixed rate on a notional principal amount, while the other party pays a floating rate linked to an inflation index, such as the Consumer Price Index (CPI). The party paying the floating rate pays the inflation adjusted rate multiplied by the notional principal amount. For example, one party may pay a fixed rate of 3% on a two year inflation swap, and in return receives the actual inflation.(5)Investing in Treasury Inflation Protected Securities to insure the purchasing power of the project company in the future and reduce the inflation influence.A treasury security is indexed to inflation in order to protect the private sectors from the negative effects of inflation. TIPS are considered an extremely low-risk investment since they are backed by the U.S. government andsince their par value rises with inflation, as measured by the Consumer Price Index, while their interest rate remains fixed. Interest on TIPS is paid semi-annually.(6)Choosing the favorable form of construction contract (e.g., Fixed-price Contract and Turn-key Contract) to transfer the increased cost due to inflation to contractors.Making a fixed price contract, turn-in-key contract and cost-plus contract with contractors, the risk of costoverruns caused by the increasing price of cement, steel and the labor can be transferred to the contractors.(7) Predicting the changing trend of future inflation and adjusting the price of product or service accordingly. The project company makes an inflation expectation during the period and confirms the price of the productsfor each annual operation, thus the risk can be avoided.(8) Enhancing the management of the receivable accounts to accelerate the recovery of the project funds. The receivable accounts are managed as the important aspect of financial administration, which influences the managementstate of the project company. Effective receivable accounts management brings favorable cash flow which determines the development or decline of the project.(9) Reducing the operating costs of the projectby strengthening the cost management. Cost management is also a significant part of financial management which can maintain and improve healthy financial statement of the project company.4.3 Currency Exchange RiskForeign exchange risk results from the mismatch between the revenue of the currency and payment obligations for taxes, operating expenses, debt service payments and dividend payments and profit repatriation (Wang et al.,2000). This often occurs in international projects where costs and revenues are computed in different currencies. However, a similar situation may arise in domesticprojects when the counterparty wants to bill the SPV in foreign currency (Gatti, 2008). Here is such an example in China. For investment in China's PPP projects, the foreign companies will invariably receive nearly all of their revenues in RMB. A significant portion of this revenue will need to be converted to other currencies, primarily US dollars, and remitted outside of China. The remittances are used to meet foreign currency obligations to equipment suppliers, to repay borrowings from foreign lenders and to make payments to the companies in respect of equity distributions and shareholder loans. The RMB is not freely convertible into USdollars; even if it is convertible,the exchange rate fluctuates all the time in the market or is subject to the approval of the State Administration for Exchange Control (SAEC). Also, there can be no assurance that the Chinese Government will continue to provide approvals.The mitigation measures for currency exchange risk mainly include:(1) Obtaining currency exchange risk sharing clause from host government. In the PPP agreement there usually exists a foreign exchange risk sharing clause, which means that if theexchange rate fluctuates within a range, the loss is borne by the private sector, but once the changes are beyond a certain value,the loss caused by the exchange rate fluctuations are borne by the host governmentor shared in proportion by both sides. Foreign exchange guarantee in PPP is not an international practice. Whether local government makes a guarantee highly depends on the degree of financial liberalization and complete.(2) Selecting appropriate currency to evade the currency exchange risk, e.g. foreign currency invoicing, loan currency invoicing, hard currency invoicing, and dual-currency agreement. A reasonable foreign currency structure would maintain the appropriate proportion between various currencies and optimize the multi-currency portfolio. The private sector may require the user to pay directly in the currency of the project sponsor country (foreign project sponsor) or adjust the fee structure in which a certain percentage of the loans are used for payment so as to reduce foreign exchange risk, or choose the strong currencies which show few exchange rate movements in the a long term such as US dollar and the euro and other strong currencies. Using a dual-currency or multi-currency agreement, namely you can pay by local currency or partially in other foreign currencies.(3) Enlarging financing proportion in local currency. The private sector needs to seek local lenders or structure their debt in local currency to mitigate risks. Because the revenue from projects can be used to repay the capital and interest, there is no foreign exchange problem and avoid exchange rate risk completely.(4) Using Exchange Rate Proviso Clause which can make a proper adjustment of repayment once the exchange rate exceeds the ratio between the repayment currency and hedge currency (e.g. gold proviso clause, hard currency hedge, and basket of currencies). If valuation in the contract is based on the local currency denominated, according to international practice and the "Guide to Contracting industrial projects in developing countries" developed by the United Nations, the clause on hedging should be provided in the contract terms in order to prevent any exchange rate risk. An Exchange Rate Proviso Clause is one measure that can make a proper adjustment of repayment based on the exchange rate between the repayment currency and the hedge currency, for instance, gold proviso clause, the hard currency hedge, and a basketof currencies. The latter can maintain the value of contracts in relation to the composite currency, like Special Drawing Right (SDR).(5) Using Leads and Lags to mitigate risks or improve profits. Leads will result when private sector making payments expect an increasing foreign-exchange rate, while lags arise when the exchange rate is expected to fall. Leads will result when the private sector making payments and expects an increasing foreign-exchange rate, while lags arise when the exchange rate is expected to fall. Leads and lags are used in an attempt to mitigate risks or improve profits.(6)Buying export credit insurance with export credit agencies against the currency exchange risk. Export credit insurance protects the foreign receivables against virtually all commercial and political risks that could result in non-payment of project company’s export invoices. This insurance especially is offered by national export credit agencies to help exporters to deal withthecurrency exchange risk.(7) Using Letter of Credit to substitute a portion of the security deposit, so the project company may take currency back in advance tomitigate foreign exchange rate risk. Letters of credit are often used in international transactions to ensurethat payment will be received. A letter from a bank can guarantee that a buyer's payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase. By using a letter of credit to substitute a portion of the security deposit, the project company may take currency back inadvance to mitigate foreign exchange rate risk.(8) Using financial derivatives to prevent currency exchange rate risk, such as forward exchanges, swaps, foreign exchange futures/options, and currency swaps.Forward ExchangeA forward contract involves an exchange with a delayed settlement. Traders set down contract conditions (specifically the date ofsettlement and the price) upon signing the contract, and the exchange is actually settled at a future, pre-agreed date. A forward contract might pertain to a currency exchange rate (on maturity, the traders sell each other one form of currency for another on the basis of an exchange rate set when the contract is drawn up).Futures on Exchange RatesA future is a forward agreement in which all the contractual provisions are standardized. In futures markets, a clearing house serves to guarantee obligations resulting from futures exchanges. This organization requires traders to pay an initial margin as collateral and daily variation margins until the position closes. Due to this fact, futures differ from forward contracts in light of their lower risk for counterparties and greater market liquidity. Futures markets, in fact, offer contracts written on the most widely exchanged currencies on an international level (Gatti 2008).Options on Exchange RatesA currency option is a viable alternative to futures, swaps, and forwards because it represents a right to buy or sella currency at a price and accounts for the volatility or the swings in currency prices. However, options are quite expensive, because protection is bought against adverse movements in the financial price but gains are also allowed from a favorable movement in the price (Clark & Marois, 1996).Currency SwapsCurrency swaps represent an agreement between two entities where one entity promises payment in one currency and the other promisesto make payments in another currency. Basically, a foreign exchange swap indicates there is a swap of a spot buy or a sale of foreign exchange offset by a forward sale or a buy. Currency swaps are a method to swap the risk for one party while the other party assumes a certain degree of risk. However, this is probably not the best mitigation tool due tothe high expenses involved if one of the currencies is not a desired/maincurrency (Chandra and Chang, 2000).(9)Balancing lending and investing to control exchange rate risk.The Balance method is effectively used in international transactionsfor controlling currency exchange risk. Take one example of balancing lending and investing is that during the same period, the private sector makes a investment which involves a local currency with the same quantity and opposite trend in order to avoid foreign exchange risk. Other ways ofbalancing are such as Borrowing, Investing, Borrow-Spot-Invest (BSI), Lead-Spot-Invest (LSI), Forfeiting, etc.(10) Utilizing multi-currency options of a syndicated loan to arrange the financing monetary structure. From project finance practice, more than 3000 million US dollar in developing countries, or more than 100 million in developed countries, of debt financing must be resolved by syndicated loans. The project sponsor should fully consider the demand for different currencies at all stages of project implementation and make full use of multi-currency options, especially in a syndicated loan, to make reasonable arrangements for currencies structure in order to minimize the foreign exchange risk, which may cause cash flow uncertainty, such as maintaining the balance between borrowing currencies and charge currency.(11) Getting advice from international institutions regarding the project’s currency exchange risk and useful actions to minimize this risk.There are numerous institutions providing services for forecasting exchange rates. Besides, the project manager should establish his/her own group which focuses on observing exchange rate fluctuations that have occurred and analyzing its impact on project progress, while providing a prediction of the tendency of short-term and long-term exchange rate.In accordance with the above discussion, a comparison of different mitigation measures faced exchange rate risk can be concluded, as below in Table 4.1.4.4 Currency Convertibility RiskMany countries impose foreign exchange restrictions or controls to prevent currency speculation and to protect their reserves. These restrictions affect the availability and value of a currency. These controls are designed to limit a customer's ability to freely convert one currency into another. Permission to exchange currencies must be given by the central bank of that country before the transaction can take place.The mitigation measures for currency convertibility risk mainly include:(1) Obtaining the host government’s guarantees on convertibility. This applies to concessions where the convertibility of currency can be guaranteed. Obtaining guarantees from the government is always the most effective measure for mitigating the exchange rate and convertibility risks.(2) Adopting alternative forms of currencies (local and foreign currency) as repayment in contract to mitigate currency convertibility risk. Set dual-currency selective repayment in contracts to mitigate lower currency convertibility risk. Which means one portion of the payment can be made in local currency and the other payment can be in the foreign currency. This measure is significant for lower currency convertibility risk.(3) Increasing bond financing to reduce the amount of direct loans, thus reducing the project company’s currency risk. The private sector can reduce the amount of direct loans by issuing bonds that can be of fixed and floating rates of interest, thus avoiding the currency risk. In this regard, bond financing is often used in reducing interest rate risk and currency convertibility risk. However, bond issuance is a long and expensive process compared to acquiring bank loans.(4)Establishing a contingency credit facility to cover unanticipated expenses. The private sector can extract the provision of risk by a certain percentage from profits each year so as to meet unexpected financial losses.(5) Training the senior management team of the project company with the related financial knowledge. Special attention should be paid to exchange rate risk for international PPP projects. In particular, company leaders and decision-makers, management personnel, financial personnel should have an understanding about foreign exchange tendency and international economic dynamics associated with the projects. Contract negotiators’understanding of exchange rate risk should bestrengthened so as to have affective planning to avoid exchange rate risk.。

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本科毕业论文(设计)外文翻译Financial Risk ManagementAlthough financial risk has increased significantly in recent years, risk and risk management are not contemporary issues. The result of increasingly global markets is that risk may originate with events thousands of miles away that have nothing to do with the domestic market. Information is available instantaneously, which means that change, and subsequent market reactions, occur very quickly. The economic climate and markets can be affected very quickly by changes in exchange rates, interest rates, and commodity prices. Counterparties can rapidly become problematic. As a result, it is important to ensure financial risks are identified and managed appropriately. Preparation is a key component of risk management.What Is Risk?Risk provides the basis for opportunity. The terms risk and exposure have subtle differences in their meaning. Risk refers to the probability of loss, while exposure is the possibility of loss, although they are often used interchangeably. Risk arises as a result of exposure.Exposure to financial markets affects most organizations, either directly or indirectly. When an organization has financial market exposure, there is a possibility of loss but also an opportunity for gain or profit. Financial market exposure may provide strategic or competitive benefits.Risk is the likelihood of losses resulting from events such as changes in market prices. Events with a low probability of occurring, but that may result in a high loss, are particularly troublesome because they are often not anticipated. Put another way, risk is the probable variability of returns.Since it is not always possible or desirable to eliminate risk, understanding it is an important step in determining how to manage it.Identifying exposures and risks forms the basis for an appropriate financial risk management strategy.How Does Financial Risk?Financial risk arises through countless transactions of a financial nature, including sales and purchases, investments and loans, and various other business activities. It can arise as a result of legal transactions, new projects, mergers and acquisitions, debt financing, the energy component of costs, or through the activities of management, stakeholders, competitors, foreign governments, or weather. When financial prices change dramatically, it can increase costs, reduce revenues, or otherwise adversely impact the profitability of an organization. Financial fluctuations may make it more difficult to plan and budget, price goods and services, and allocate capital.There are three main sources of financial risk:1. Financial risks arising from an organization’s exposure to changes in market prices, such as interest rates, exchange rates, and commodity prices.2. Financial risks arising from the actions of, and transactions with, other organizations such as vendors, customers, and counterparties in derivatives transactions3. Financial risks resulting from internal actions or failures of the organization, particularly people, processes, and systemsWhat Is Financial Risk Management?Financial risk management is a process to deal with the uncertainties resulting from financial markets. It involves assessing the financial risks facing an organization and developing management strategies consistent with internal priorities and policies. Addressing financial risks proactively may provide an organization with a competitive advantage. It also ensures that management, operational staff, stakeholders, and the board of directors are in agreement on key issues of risk.Managing financial risk necessitates making organizational decisions about risks that are acceptable versus those that are not. The passive strategy of taking no action is the acceptance of all risks by default.Organizations manage financial risk using a variety of strategies and products. It is important to understand how these products and strategies work to reduce risk within the context of the organization’s risk tolerance and objectives.Strategies for risk management often involve derivatives. Derivatives are traded widely among financial institutions and on organized exchanges. The value of derivatives contracts, such as futures, forwards, options, and swaps, is derived from the price of the underlying asset. Derivatives trade on interest rates, exchange rates, commodities, equity and fixed income securities, credit, and even weather.The products and strategies used by market participants to manage financial risk are the same ones used by speculators to increase leverage and risk. Although it can be argued that widespread use of derivatives increases risk, the existence of derivatives enables those who wish to reduce risk to pass it along to those who seek risk and its associated opportunities.The ability to estimate the likelihood of a financial loss is highly desirable. However, standard theories of probability often fail in the analysis of financial markets. Risks usually do not exist in isolation, and the interactions of several exposures may have to be considered in developing an understanding of how financial risk arises. Sometimes, these interactions are difficult to forecast, since they ultimately depend on human behavior.The process of financial risk management is an ongoing one. Strategies need to be implemented and refined as the market and requirements change. Refinements may reflect changing expectations about market rates, changes to the business environment, or changing international political conditions, for example. In general, the process can be summarized as follows:1、Identify and prioritize key financial risks.2、Determine an appropriate level of risk tolerance.3、Implement risk management strategy in accordance with policy.4、Measure, report, monitor, and refine as needed.DiversificationFor many years, the riskiness of an asset was assessed based only on the variability of its returns. In contrast, modern portfolio theory considers not only an asset’s riskiness, but also its contribution to the overall riskiness of the portfolio to which it is added. Organizations may have an opportunity to reduce risk as a result of risk diversification.In portfolio management terms, the addition of individual components to a portfolio provides opportunities for diversification, within limits. A diversified portfolio contains assets whose returns are dissimilar, in other words, weakly or negatively correlated with one another. It is useful to think of the exposures of an organization as a portfolio and consider the impact of changes or additions on the potential risk of the total.Diversification is an important tool in managing financial risks. Diversification among counterparties may reduce the risk that unexpected events adversely impact the organization through defaults. Diversification among investment assets reduces the magnitude of loss if one issuer fails. Diversification of customers, suppliers, and financing sources reduces the possibility that an organization will have its business adversely affected by changes outside management’s control. Although the risk of loss still exists, diversification may reduce the opportunity for large adverse outcomes.Risk Management ProcessThe process of financial risk management comprises strategies that enable an organization to manage the risks associated with financial markets. Risk management is a dynamic process that should evolve with an organization and its business. It involves and impacts many parts of an organization including treasury, sales, marketing, legal, tax, commodity, and corporate finance.The risk management process involves both internal and external analysis. The first part of the process involves identifying and prioritizing thefinancial risks facing an organization and understanding their relevance. It may be necessary to examine the organization and its products, management, customers, suppliers, competitors, pricing, industry trends, balance sheet structure, and position in the industry. It is also necessary to consider stakeholders and their objectives and tolerance for risk.Once a clear understanding of the risks emerges, appropriate strategies can be implemented in conjunction with risk management policy. For example, it might be possible to change where and how business is done, thereby reducing the organization’s exposure and risk. Alternatively, existing exposures may be managed with derivatives. Another strategy for managing risk is to accept all risks and the possibility of losses.There are three broad alternatives for managing risk:1. Do nothing and actively, or passively by default, accept all risks.2. Hedge a portion of exposures by determining which exposures can and should be hedged.3. Hedge all exposures possible.Measurement and reporting of risks provides decision makers with information to execute decisions and monitor outcomes, both before and after strategies are taken to mitigate them. Since the risk management process is ongoing, reporting and feedback can be used to refine the system by modifying or improving strategies.An active decision-making process is an important component of risk management. Decisions about potential loss and risk reduction provide a forum for discussion of important issues and the varying perspectives of stakeholders.Factors that Impact Financial Rates and PricesFinancial rates and prices are affected by a number of factors. It is essential to understand the factors that impact markets because those factors, in turn, impact the potential risk of an organization.Factors that Affect Interest RatesInterest rates are a key component in many market prices and an important economic barometer. They are comprised of the real rate plus a component for expected inflation, since inflation reduces the purchasing power of a lender’s assets .The greater the term to maturity, the greater the uncertainty. Interest rates are also reflective of supply and demand for funds and credit risk. Interest rates are particularly important to companies and governments because they are the key ingredient in the cost of capital. Most companies and governments require debt financing for expansion and capital projects. When interest rates increase, the impact can be significant on borrowers. Interest rates also affect prices in other financial markets, so their impact isfar-reaching.Other components to the interest rate may include a risk premium to reflect the creditworthiness of a borrower. For example, the threat of political or sovereign risk can cause interest rates to rise, sometimes substantially, as investors demand additional compensation for the increased risk of default.Factors that influence the level of market interest rates include:1、Expected levels of inflation2、General economic conditions3、Monetary policy and the stance of the central bank4、Foreign exchange market activity5、Foreign investor demand for debt securities6、Levels of sovereign debt outstanding7、Financial and political stabilityYield CurveThe yield curve is a graphical representation of yields for a range of terms to maturity. For example, a yield curve might illustrate yields for maturity from one day (overnight) to 30-year terms. Typically, the rates are zero coupon government rates.Since current interest rates reflect expectations, the yield curve provides useful information about the market’s expectations of future interest rates.Implied interest rates for forward-starting terms can be calculated using the information in the yield curve. For example, using rates for one- and two-year maturities, the expected one-year interest rate beginning in one year’s time can be determined.The shape of the yield curve is widely analyzed and monitored by market participants. As a gauge of expectations, it is often considered to be a predictor of future economic activity and may provide signals of a pending change in economic fundamentals.The yield curve normally slopes upward with a positive slope, aslenders/investors demand higher rates from borrowers for longer lending terms. Since the chance of a borrower default increases with term to maturity, lenders demand to be compensated accordingly.Interest rates that make up the yield curve are also affected by the expected rate of inflation. Investors demand at least the expected rate of inflation from borrowers, in addition to lending and risk components. If investors expect future inflation to be higher, they will demand greater premiums for longer terms to compensate for this uncertainty. As a result, the longer the term, the higher the interest rate (all else being equal), resulting in anupward-sloping yield curve.Occasionally, the demand for short-term funds increases substantially, and short-term interest rates may rise above the level of longer term interest rates. This results in an inversion of the yield curve and a downward slope to its appearance. The high cost of short-term funds detracts from gains that would otherwise be obtained through investment and expansion and make the economy vulnerable to slowdown or recession. Eventually, rising interest rates slow the demand for both short-term and long-term funds. A decline in all rates and a return to a normal curve may occur as a result of the slowdown.Source: Karen A. Horcher, 2005. “What Is Financial Risk Management?”.Essentialsof Financial Risk Management, John Wiley & Sons, 财务风险管理尽管近年来金融风险大大增加,但风险和风险管理不是当代的主要问题。

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