A FRAMEWORK FOR

RISK MANAGEMENT
By Syndicate 1

PRESENTED BY
Hanindita Guritna
29114713
Hussein Al-Muhtadeebillah
29114737
Felix Terahadi
29114744
Rini Amelia
2911857
Hidratul Fidic Dirgantara
2911859

ECONOMIC
FLUCTUATION
example

Destabilized
Performance

24%

Decrease in Energy Prices

50%

U.S Dollar Appreciation

Protect fromRISKS
using

SWAP

FORWARD

DERIVATIVES
FUTURES

BUT

OPTIONS

MUST have CLEAR

RISK MANAGEMENT strategy

Risk Management Paradigm

1 | Making Good Investment
is the key to creating corporate value

2 | Generate Cash Internally

To fund those investments

3 | Cash Flow

Can be disrupted by external factors

FROM PHARAOH to MODERN FINANCE

The Story of Pharaohs Dream
Creation of Futures Market in the Middle Age
In 1950s Foundation of Modern Finance
In 1970s Finance Specialists accepted the
concept of Hedging
Creation of Post-Modern Paradigm in the last
2 decades

WHY
HEDGE? ?

Payoffs from R&D Investment

Effect of Hedging

WHEN TO
HEDGEOR NOT

Omega Drug VS Omega Oil

The Important Things

C ommodity
Price

E xchange
Rates

Interest
Rate

Cash Flow

The Main Idea of

Risk Management Strategy
COMPANY

CASH

RISK

INVESTMENT

DEMYSTIFYING DERIVATIVES
Forward Based Contracts:
Forward, S waps, and Futures

+ Linear

The payoffs are linear to the gains and losses

Option Based Contracts:

Options, C aps, and Floors

+ Non-linear

The payoffs are non-linear to the gains and

losses

+ No Money Down

+ Money Down

+ Settlement at Maturity

+ Settlement at Exercise

+ C ustomization

+ C ustomization

No money changes hands when the contract is C ontract requires an initial investment when
initiated
the position is established
Forward contracts are not settled until their
maturity date
Maturity date and characteristics of underlying
assets can be customized

Forward contracts are settled when they are

exercised
Available on exchanges and over the counter
market

FOR MANAGERS

1
COMPANIES
SHOULD NOT
adopt the same

HEDGING STRATEGY

COMPANIES
from RISK
EVEN

MAY BENEFIT

MANAGEMENT

WITHOUT Major Investment

COMPANIES

with

Conservative
Capital
Structure

can
BENEFIT

from HEDGING

affects

FOREX
RISK

Cash Flows

&

Investment
Opportunities

COMPANIES SHOULD
pay ATTE NTION

to competitors

HEDGING STRATEGY

the choice of

DERIVATIVES

be delegated to

6
CANNOT

FINANCIAL SPECIALISTS