Multinational Corporate Finance HW1: a MNCs perception of risks and

how they deal with them

Alexandru Bogdan Georgian, s1511326, ID 0985681
1. Find those risks that are dealt with by international financial management
2. Explain how Glencore Xstrata deals with them

Identified risk

Fluctuations in expected volumes of

supply or demand for the commodities
provided

Fluctuations of commodity prices

Fluctuation in currency exchange rates

Geopolitical risk

Compliance with laws and

regulations

Liquidity risk

Arbitrage opportunities

Hedging strategy

Mitigation method(s)

the portfolio of commodities produced or

marketed is maintained diversified
Along with the diversified portfolio, the
Group is constantly running reviews in
order to optimize its asset portfolio such
that it is sufficiently cost effective and
efficient. In this regard, they make sure
that a substantial part of their inventory
is either under contract for sale or
hedged through futures and options on
commodity exchanges
the Group operates in various
geographic locations and uses hedging
in addition to the geographical
diversification of commodities and
operations, the Group is continuously
monitoring and engaging in dialogue
through and with the entire network of
field offices
the Group is constantly monitoring
legislative requirements and it aims to
ensure full compliance in this regard
the Group has an established policy of
liquidity risk management stating that it
should maintain a level of cash and cash
equivalents sufficient enough to meet
both anticipated and unanticipated
funding needs
along with the diversified portfolio the
Group maintains, it enjoys informational
privileges due to its global network and
logistics capabilities
the Group has an established policy of
hedging the inventory that is not already
contracted through futures and swap

Counterparty credit and

performance risk

Supply of commodities from third

parties
Freight, storage, infrastructure and
logistics support

Non-controlling stakes, joint

ventures and strategic partnerships
or agreements

Project development

Cost control

contracts
the Group uses credit support from
creditworthy financial institutions as well
as collateralizing hedging contracts.
Moreover, through active monitoring of
the counter parties using internal
reviews, industry experience and
relationships and a credit scoring
process
the Group has a large number of
suppliers therefore not being reliant on
any one of them
due to the Groups market position,
global reach and its established
relationships, this risk is mitigated
in cases where the Group is not solely
responsible for the control over projects
and operations, it actively participates in
the governance structures in order to
ensure compliance with its established
policies and objectives
the Group has an established project
status evaluation as well as reporting
processes. Also, regularly auditing is
used
the Group has an established reporting
process on maintaining costs and/or
lowering them as well as the usage of
certain cost control evaluation
measures. Moreover, the geographic
diversification and the plenitude of
project help in this regard