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 Destabilized
FLUCTUATION Performance
example
24%
50%
Decrease in Energy Prices

U.S Dollar Appreciation

Protect fromRISKS
SWAP FORWARD
using
DERIVATIVES
FUTURES OPTIONS

BUT
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 Pharaoh’s Dream

Creation of Futures Market in the Middle Age
In 1950’s Foundation of Modern Finance
In 1970’s 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
HEDGE-
OR NOT
Omega Drug VS Omega Oil
 The Important Things
E xchange
Rates
C ommodity
Price

Interest
Rate

Cash Flow
 The Main Idea of
Risk Management Strategy

COMPANY CASH INVESTMENT

RISK
DEMYSTIFYING DERIVATIVES
Forward Based Contracts: Option Based Contracts:
Forward, S waps, and Futures Options, C aps, and Floors

+ Linear + Non-linear
The payoffs are linear to the gains and losses The payoffs are non-linear to the gains and
losses
+ No Money Down + Money Down
No money changes hands when the contract is C ontract requires an initial investment when
initiated the position is established

+ Settlement at Maturity + Settlement at Exercise

Forward contracts are not settled until their Forward contracts are settled when they are
maturity date exercised

+ C ustomization + C ustomization
Maturity date and characteristics of underlying Available on exchanges and over the counter
assets can be customized market
FOR MANAGERS
 1
COMPANIES
SHOULD NOT
adopt the same

HEDGING STRATEGY
 2
COMPANIES MAY BENEFIT
from RISK MANAGEMENT
EVEN
WITHOUT Major Investment
COMPANIES with
3
Conservative
Capital
Structure can
BENEFIT
from HEDGING
 4
FOREX
RISK affects
Cash Flows
Investment
& Opportunities
 5
COMPANIES SHOULD
pay ATTE NTION
to competitors’
HEDGING STRATEGY
 6
the choice of
DERIVATIVES CANNOT
be delegated to
FINANCIAL SPECIALISTS