Transferable risk: Difference between revisions
From ACT Wiki
Jump to navigationJump to search
imported>Doug Williamson (Link with Committed risk and Uncommitted risk pages) |
imported>Doug Williamson (Layout.) |
||
| (9 intermediate revisions by the same user not shown) | |||
| Line 1: | Line 1: | ||
Risk | ''Risk management.'' | ||
Risks can usefully be classified as 'transferable' or 'non-transferable'. | |||
Transferable risks are those which can be transferred to | Transferable risks are those which can be transferred to another organisation or person, at a price. | ||
Ways of transferring these risks include hedging with risk management products, or buying insurance. | |||
In these ways and others, we can remove many transferable risks from our organisation, if we choose to. | |||
However, risks can only be transferred where there is a market for them, and not all risks are transferable. | |||
:<span style="color:#4B0082">'''''Example: Transferable risk'''''</span> | |||
:An exporter sells to a customer in another country, in foreign currency. | |||
:The exporter has a transferable foreign exchange risk on the domestic currency equivalent of the future sales receipt. | |||
:The exporter can eliminate this risk by entering into a forward foreign exchange contract with a bank, effectively fixing the domestic currency equivalent of the receipt. | |||
:What was initially the exporter's foreign exchange risk has now become the bank's risk. | |||
:Naturally the bank will price the foreign exchange transaction so that it earns an appropriate reward for accepting and managing the risk transferred to it. | |||
| Line 11: | Line 30: | ||
* [[Committed risk]] | * [[Committed risk]] | ||
* [[Non-transferable risk]] | * [[Non-transferable risk]] | ||
* [[Risk management]] | |||
* [[Uncommitted risk]] | * [[Uncommitted risk]] | ||
[[Category:Financial_risk_management]] | |||
Latest revision as of 22:42, 20 May 2020
Risk management.
Risks can usefully be classified as 'transferable' or 'non-transferable'.
Transferable risks are those which can be transferred to another organisation or person, at a price.
Ways of transferring these risks include hedging with risk management products, or buying insurance.
In these ways and others, we can remove many transferable risks from our organisation, if we choose to.
However, risks can only be transferred where there is a market for them, and not all risks are transferable.
- Example: Transferable risk
- An exporter sells to a customer in another country, in foreign currency.
- The exporter has a transferable foreign exchange risk on the domestic currency equivalent of the future sales receipt.
- The exporter can eliminate this risk by entering into a forward foreign exchange contract with a bank, effectively fixing the domestic currency equivalent of the receipt.
- What was initially the exporter's foreign exchange risk has now become the bank's risk.
- Naturally the bank will price the foreign exchange transaction so that it earns an appropriate reward for accepting and managing the risk transferred to it.
