Financial Risk Management In The Briggs Distribution Center Finance Essay - Free Essay Example

This report is based on the Assessment of the methods available to Briggs distribution center for analyzing its risks the structure of the job in the Briggs distribution center should be based on the increase of efficiency in consideration of the main sources of financial risk for the company. This is based on the appreciation of the fact that the majority of the clients of Briggs are commercial stores of specifically large size such as the Macys. The distribution center however is also responsible for the shipment of the mail orders that comes from the amazon.com. Although the nature of the work is manual, a fairly clean work is usually evident as a result of the extent of motivation. Main sources of financial risk The major transformations that took place between 1980s and 1990s in financial markets on an international context have played a significant role in the intensity of financial risks in the company. The introduction of the highly complex as well as dynamic changes is consequential to the substantial escalation of the situation of uncertainties in as far as the marketplace is concerned. In the current environment where dynamic and aggressive industry of financial services is dominant, the participants in the market have higher degree of exposure to the financial risks and this is as a result of some important reasons Among the most important of the reasons is the issue of the globalization of international markets. the markets that exist in the entire globe are assuming a trend of consolidation in to a huge market of the world that is associated with the gradual removal of the obstacles that are associated to free movement in as far as the capital is concerned. This situation may be perceived through the consideration of the current global crisis that came about as a result of the occurrence of the problems in a specific area in the globe that were promptly experienced by the markets as well as the investors in the rest of the regions (Abela Ducanes, 2009). Another important reason relates to the volatility that is associated with the current international markets. The issue of volatility that has the implication of the fluctuations that are evident in the global markets with regard to the prices as well as the ratios is a very significant source leading to a financial risk. With the increase in the level of volatility in the market, the participants in the market have an exposure to greater magnitudes of uncertainty leading to a greater extent of the risk (Akyuz, 2007). Another important transformation with regard to the conditions that is associated with the global markets relates to the onset of new types of investments whose structures are relatively complex. The increase in the diversity of the tools of investment is consequential to the expansion of additional others such as is the case with the derivative instruments. These have the intensions of reduction of the extent of the risk that has a close association with the numerous f inancial transactions. There is a continuous increase in the scope of the application of derivative instruments with the anticipation that the level of the financial risk can be significantly reduced in as far as the financial markets are concerned. However, there has been an increase in the extent of the losses that are attributed to derivative operations. Another important contributing force to the surge in the extent of financial risk involves the global escalation of the supply of the funds that are loanable. the surge that also works in combination to the greater levels of uncertainties has been consequential to significantly high levels of the losses as a result of the issue of materialization in as far as the financial risks are concerned. This is the situation of losses that lead to the increase in the frequency of financial scandals that affected the company in 1990s. Lack of proper care in this case can lead a situation of impossibility of the reduction of the losses even if the managers of the organization are the Nobel-prize winning managers (Ghose, Majid Ernst, 2008). The last issue of consideration in this respect involves the most important reasons that are responsible in the escalation of the financial risks with regard to their close association with the greater level of intensity with regard to the international competitiveness. with the specific consideration of the credit risk, there has been a greater extent of the complication as a result that the banking sectors that are allied to the already developed in addition to the countries of the emerging markets have initiated a situation of competition in as far as the similar arena is concerned. this is further complicated by theissue of the competition of the relatively larger banks against the financial institution that are not allied to the banks (Duflo, 2005). The working environment at the moment is usually turbulent as well as chaotic and this call for the application of the full potentials of the talents of the employees so as to minimize the sources of financial risk for the company. Managers are in most of the cases perceive financial risk as a mysterious thing (Donald, Kenji Mark, 2004). The supervisors as well as the managers have the responsibility of promoting the general well being of the enterprise and have a clear understanding of the overlapping duties that confront them (Koo, 2008) In some cases the action of delivering as well as the flattening of the existing hierarchies is responsible for the creation of insecurity and the lowering of the morale of the staff majority of the staff at the moment usually work on a part-time contract as well as terms that are limited and their level of risk is usually associated with some difficulties. The fundamental principles underlying financial risk of the firm are usually simple. This is based on the realization of what actions are responsible for the achievement of what is good for the prosperity of the business. This therefore requires that the manager as well as the supervisor becomes keen in observation to determine what the requirements of the business (Berg Kucera, 2008). It is important to appreciate the advantages associated with spending of sufficient time with every team member on a regular basis while asking some question related to what the employee enjoys doing, what actions are preferred for the future of th e firm and the like. There is therefore a need to give some preference for the best approach related to the design of the job as well as the supporting rationale Financial risk management bears the implications of the practices that usually yield to the creation of an economic value with respect to an organization through the application of financial instruments for the purpose of the management of risk exposure and especially with regard to the credit risk in addition to the market risk. There are also other types that are also in existent including the foreign exchange, the shape, the volatility, inflation, sector, volatility among others. In a similar manner as is applicable for the case of the management of the general risk, the issue of financial risk management calls for the identification of the sources of the risk, its measurement in addition to the plans that are relevant with regard to addressing the risk. The management of financial risk may be addressed through the application of a quantitative or a qualitative approach. The focus of the management off financial risk is based on the identification of how as well as when hedging ca n be applied with the application of financial instruments for the purpose of the management of the risk exposures that are usually expensive. On a global perspective, there has been a general adoption of the Basel accords by the banks that are internationally active to achieve the tracking, reporting in addition to thee exposure of the operational, credit as well as the market risks (Lam, 2003). According to the financial theory or in other words that financial economics, there is a prescription by the firms that projects must be taken when there is an increase in the value of the shareholder. There is also an indication by the financial theory that the managers of firms are not in the best position of creating the value for the shareholders who are also identified as the investors as a result of the embracement of the of the projects that the shareholders are best suited to accomplish on their own at a cost that is no different. In its applicability in the sense of the management of the financial risk, this has the implication of the fact that the managers of the organizations are not in a good position of hedging the risks which the investors are best suited to hedge on themselves at a cost that is no different. The idea is based on the capturing through the hedging irrelevance proposition (Cavallo Izquierdo, 2009). in a market that is perfect, the organization has no pot entials that are responsible for the creation of value as a result of the application of hedging a specific risk in consideration of the fact that the price that may be needed to beat the particular risk in as far as the firm is concerned is equivalent to the price that could facilitate bearing the same risk outside the organization. In a practical sense, there are fewer possibilities for the financial markets to actually assume the status of perfect markets. This therefore leads to the suggestion of the fact that the managers of the organization is in exposure to the majority of the opportunities that are responsible for the creation of value for the interests of the shareholders with the application of the management of financial risks. The trick lies in the determination of the particular risk that is cheaper to be managed by the firm in comparison to the shareholders. However, according to the general rule of the thumb the market risk which is resultant to the unique risks in as far as the firm is concerned is usually the most appropriate candidate for the management of financial risk. There are always some dramatic transformations in as far as the concepts that are related to the management of the financial risks with regard to international realm. Most of the corporations of international standards are usually confronted with a majority of diverse obstacles in their attempts to defeat the challenges of this nature. It has specifically been identified some three kinds of exposure to the foreign exchange for a variety of the future horizons of time. These include the transactions exposure, the accounting exposure as well as the economic exposure (James, 2008). Hedging Hedging implies to the technique that is designed to facilitate the elimination or the reduction of risk. Derivatives facilitate for the risk in connection to the price of the assets that underlie and in need of a transfer from a particular party to the other. A good example of this case is an agreement of a signing of a contract for the future between a wheat grower and milling agent with regard to the exchange of a certain quantity of money to represent a specified quantity of wheat in future (Heller, 2006). The future risk has been minimized by the two parties that is the price uncertainty in the case of the farmer and the wheat availability for the case of the milling agent. There is however another risk that cannot be catered for in this instance. This relates to the availability of the wheat as a result of other events that cannot be specified such as the conditions of weather or the braking of the contract by one of the parties before the agreed time. this in some cases may be taken care of by a third party, the clearing house, with the responsibilities pf insuring the future contracts although still it is not all the derivatives that can be insured against the counterparty risks. Therefore a certain degree of risk still persists even with the consideration of the measures of mitigation (Crockford, 1986). Another possibility for the occurrence of hedging is the situation that an individual or a firm purchases some assets such as a commodity, bond bearing some coupon payments or even a stock that is capable of paying some dividends among others and then sells it later with the utility of futures contract. The individual or the firm gains some access to that particular asset for an extent of time that is specified and is then in a position of selling it in future at a price that is specified in as far as the futures contract are concerned. this has a benefit since the concerned is exposed to some benefits that are associated with the holding of the asset and at the same time bearing in mind the reduction of the risk and the possibility of the an unexpected deviation of the selling price in the future based on the current assessment of the market of the asset value in the future (Heller, 2005). Types of derivatives There exist two important broad categories of derivatives as contracts and the manner of their distinction is based on the approach of the manner that they must be traded in as far as the market ids concerned. Over-the-counter, OT, derivatives These types of the derivatives have the implication of the contracts which must be traded as well as negotiated in a private manner with the use of a direct approach amongst two distinct parties. They do not require going through the process of an exchange or the rest of the intermediaries. Products of the nature of swap, the forward rates agreements in addition to the exotic options are entirely and in most of the circumstances traded in this manner. The market of Over-the-counter is one of the enormous markets that deal with the derivatives and to a greater extent it is usually unregulated in consideration of the disclosure regarding the information that bides the parties. This is based on the fact that the market of Over-the-counter is composed of the banks in addition to the parties that are sophisticated in an exaggerated manner. This situation is exemplified by the hedge funds. The issue of reporting the amounts of Over-the-counter is associated with some difficulties as a resu lt of the requirement of the traders tp appear in private with the absence of the visibility of activity or any form of exchange (Charles, 2004). Exchange-traded derivatives An Exchange-traded derivative is another category of derivatives with the implication of the derivative products that have to be traded through the derivatives exchanges that are specialized in addition to the rest of the exchanges. The role of the derivative exchange is to play the part of intermediary to the entire transactions that have a relationship. Exchange-traded derivative embraces the initial margin in as far as the two sides is concerned in relation to the trade and serves the purpose of guarantee. Some of the types of the instruments of the derivatives have the potential of trading in the context of the exchanges of traditional manner. A good example of this is the hybrid instruments like the convertible bonds in addition to the convertible preferred that in most of the situations appears on the list of the stock or even the bond exchange. In the same manner warrants or even the rights have a chance of being listed with regard to the equity exchanges. among the rest of th e options of instruments that ideally consists the options bundle in a complex set ion a package that is simple are the performance rights in addition to the Cash xPRTs that are also listed in routine manner in as far as the equity exchanges are concerned (Dhanani Islam, 2002). Derivatives are usually associated with unsuitably great levels of risk in the case that the investor is of a significantly small size or of little experience. Due to the fact that the derivatives are in a position of offering the probability of rewards of immense importance, their have the potentials of offering the attractions in the context of up to an individual investor. It is however noteworthy that the issue of speculation in the context of the derivatives is in a better condition of assuming a great deal in as far as the risk is concerned. This therefore calls for the commensurate experience in addition to the knowledge of the market and more so as it applies for the case of the relatively small investor. This is the actual reason as to why most of the financial planners advocate for the abstinence of utilizing the instruments of this nature. Derivative are the instruments that are associated with an extent of complexity that has been devised to serve the function of an insur ance, also to serve the role of transferring of the risks among the parties on the basis of their inherent willingness to take the responsibilities of the extra risks or taking the initiative of a hedge in response to it. With the increase in importance of financial risk management over the last few years it is important to initiate. With the increase in importance of financial risk management over the last few years identify and assess how regulations on corporate governance have been subject to ongoing review. This is based on the importance of assessment, the management as well as the reduction of the financial risk that is essential in the facilitation of a comprehensive financial system. the With the increase in importance of financial risk management over the last few years identify and assess how regulations on corporate governance have been subject to ongoing review are the foundations of a sound economy. This essentially relies on the appropriateness of the functioning of the real as well as the financial sectors and it is undoubtedly that in the near future, there will be a need for an extra thought towards the issues of the reduction of financial risks in addition to the prevention of a sit uation of interference with the most appropriate functioning in as far as the entire system is concerned