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Financial Risk Management In a Volatile Economy

Financial Risk Management In a Volatile Economy. R.Kannan 20 October 2011 Annual CFO Conference – Silicon India. Economic Environment. Expectations of Economic Growth had shown a declining trend in developed countries.

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Financial Risk Management In a Volatile Economy

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  1. Financial Risk ManagementIn a Volatile Economy R.Kannan 20 October 2011 Annual CFO Conference – Silicon India

  2. Economic Environment • Expectations of Economic Growth had shown a declining trend in developed countries. • US and Europe are affected in a big way and back to old normal will take a few years • Corporate Sector outlook in many countries had shown a negative trend. • Asian countries offer promise in Economic Growth • Customer sentiments are very positive in the Developing countries • The developing countries have to take the lead in sustaining the global economic growth. • Focus is shifting to the Real Economy activities. • Regulators have started discouraging the Profiting from Derivatives and just paper transactions • There will be increased regulation on speculative activities. • Profiting from speculation will come down

  3. Trends • There will be increased volatality in the performance of Economies, Corporates, Markets and different asset classes. • The old method of forecasting and the available statistical models can not address all the imponderables. • The inflation is likely to come down to 7% and then to 5% within a year. • The Economic growth this fiscal would be between 8 and 8.5% and depending on global developments, the prospects for the growth will evolve in future.

  4. Managing Volatility Challenges for CFO’s are many • Managing a multi country operation • Main challenge is how to manage volatility in Demand, Costs of inputs and managing Cash. • Robust Financial and Performance Planning • Ensuring predictable performance • Measurement of Risk • Be ready with an appropriate response for various types of risks. • Introduction of new reporting standards by regulatory authorities

  5. Strategies to be followed • Develop a highly flexible organisation and Financial Architecture. • Reduce the level of Fixed costs in the system and increase the variable costs. • Strategic outsourcing of activities and follow asset light strategies. • Focus on Cash generation • Focus on Core business and reduce the income from financial and derivative transactions. • Scenario planning and be ready with response for all possible scenarios.

  6. Hedge the input costs and output price at the budgeted levels. • Monitoring of performance at regular intervals including daily, weekly and monthly depending on the need. • Monitor supplier and Customer performance closely. • Develop a good risk management system and monitor all types of risks continuously. • Introduce flexibility into the budgeting system. • Review the ongoing Projects and Capital expenditure progammes at regular intervals and assess the need for course correction.

  7. Thanks

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