From the course: Finance Foundations: Risk Management

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Nonfinancial solutions

Nonfinancial solutions

From the course: Finance Foundations: Risk Management

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Nonfinancial solutions

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- When thinking about financial market risk management, the first instinct of some is to jump into financial market solutions, but there are usually other solutions. Natural hedges, physical agreements, acquisitions and divestitures that could provide the same level of protection or better. Some of the ways that companies can also reduce their financial market risks without using options, swaps, forwards or futures. These are more operational in nature, but they can get the job done. One of the simplest ways to manage a financial market risk is to use a natural hedge, a hedge that exists within your business operations. For example, if you have euro exposures, but you're a US-based business, maybe you want to re-invest the euros in Europe when that currency is weak and you can build your business in Europe. This would allow your company to repatriate its earnings to bring them back to the United States in dollars…

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