CARPIO, Matthew Gabriel NILO, Micaela 2 BFM

GUERRERO, Anna Pauline NOBLE, Juliene Rose FIN MNGT

HERNANDEZ, Elian Miguel GROUP 4

• Globe Telecom Philippine Derivative Information for 2019

1. What is the derivative instrument? Give description to that said derivative

instrument.
o Based on the audited financial statements of Globe Telecom Philippines, two
derivative instruments were utilized in assessing the risk management namely:
Natural Hedges and Swap Contracts. Natural Hedge is a strategy wherein the
percentage of risk situation can be reduced into a certain extent by investing assets
between two parties or counterparties to create a hedge effect. Commonly, natural
hedges are used to limit the risks by offsetting losses made by other parts of the
 company and vice-versa. This method is used to allocate resources to other
counterparties affected by the risk.

Moreover, Globe Telecom also used swap contracts as a derivative instrument. This
instrument is known for having to swap an obligation between two parties to
decrease or lessen the risk for arising interest payments. The most common function
of a swap contract is to create a hedge for interest risk thus, finding an alternative
organization to swap with.

2. How was this derivative instrument used as a risk management tool by the company?
o With Globe Telecom utilizing the use of natural hedges and swap contracts, these
derivative instruments can minimize the effects or possibilities for a large
percentage to risk exposure. It is in the company’s policy to ensure that the
management will carefully administer its foreign exchange and interest rate risk
therefore, the derivative instrument used by Globe Telecom are mainly applied to
reduce and lessen these kinds of exposure as well as to eliminate uncertainty to risk.
With that, swap contract will only be utilized for foreign exchange and principal
repayments on USD debts.