The Handbook of Corporate Financial Risk Management (2nd Edition)
First published:
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Early Warning Signals
Early Warning Signals
Foreword
Introduction
Theory and Practice of Corporate Risk Management
Theory and Practice of Optimal Capital Structure
Introduction to Funding and Capital Structure
How to Obtain a Credit Rating
Refinancing Risk and Optimal Debt Maturity
Optimal Cash Position
Optimal Leverage
Introduction to Interest Rate and Inflation Risks
How to Develop an Interest Rate Risk Management Policy
How to Improve Your Fixed-Floating Mix and Duration
Interest Rates: The Most Efficient Hedging Product
Do You Need Inflation-linked Debt?
Prehedging Interest Rate Risk
Pension Fund Asset and Liability Management
Introduction to Currency Risk
How to Develop Currency Risk Management Policy
Translation or Transaction: Netting Currency Risks
Early Warning Signals
How to Hedge High Carry Currencies
Currency Risk on Covenants
Optimal Currency Composition of Debt 1: Protect Book Value
Optimal Currency Composition of Debt 2: Protect Leverage
Cyclicality of Currencies and Use of Options to Manage Credit Utilisation
Managing the Depegging Risk
Currency Risk in Luxury Goods
Introduction to Credit Risk
Counterparty Risk Methodology
Counterparty Risk Protection
Optimal Deposit Composition
Prehedging Credit Risk
xVA Optimisation
Introduction to M&A-related Risks
Risk Management for M&A
Deal-contingent Hedging
Introduction to Commodity Risk
Managing Commodity-linked Revenues and Currency Risk
Managing Commodity-linked Costs and Currency Risk
Commodity Input and Resulting Currency Risk
Offsetting Carbon Emissions
Introduction to Equity Risk
Hedging Dilution Risk
Hedging Deferred Compensation
Stake-building
Emerging markets (EMs) such as Brazil, China and Russia are no longer “emerging”. It seems that the names given to those economies are always outdated. We used to call them “developing countries” in the 1980s, then “emerging markets” thereafter, and now that many emerging markets have emerged, perhaps the best term would be “local markets”. Faced with a stagnant or low-growing economy in the developed world, many companies are finding that their most significant growth areas are the EMs of Asia, Latin America and Africa. Most of these markets offer high growth due to a rapidly growing population with increasing purchasing power and consumer needs. However, there are many risks, both financial and operational, when exploring new horizons. In this section, we will focus on the currency risk.
Currency risk in EMs is in many ways different from the developed markets. The key differences are outlined below.
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Unlike the developed market currencies, EM currencies are often managed or pegged. For example, some Middle Eastern currencies are pegged to the USD. This tends to make the markets less liquid, and therefore the risks of depreciation often difficult to predict.
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