How Firms in Developing Countries Manage Risk

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0821324691

This discussion paper explains what financial risks face firms in developing countries and how managers deal with them. The volatility of financial markets in recent years has led to a number of new instruments for managing risks. This paper analyzes them and discusses their use.The author outlines several sources of risk for firms. These include uncertainties about the course of exchange rates, interest rates, and commodity prices, as well as risks not associated with transactions, such as inflation.Recent international developments in the management of risks are outlined. The paper discusses the progression of derivative securities employed to manage risk. These include forward contracts, options, swaps, and currency and interest rate futures.The paper reviews the special problems of developing countries in managing risks. The author cites access to securities markets, market regulation, and taxation of the instruments used to manage risk as examples of the impediments some firms face.This paper will be of interest to corporate financial officers and portfolio risk managers.