RISK MANAGMENT
Our
interest now turns toward the role of sophisticated risk
management. Conceptually, the value of an
asset is the discounted value of expected future cash flows created by
that asset. This presumes the ability to determine or develop an
appropriate discount rate, relevant to risks being assumed, and a set
of
cash flows that also reflect the inherent risk in owning or operating
any
asset in an uncertain future. We want to look at the issue of how
firms assess and manage those risks in order to make better
decisions. The bulk of risk management focuses on the areas of
managing foreign exchange, debt costs and commodity costs. There
are obviously other risks inherent in the firm, but finding a way to
hedge or mitigate the impact of those risks is much less clear.