The basic objectives in the financial policy of any organization must be analyzed with priority in the measures that at a time will enable decision-making to minimize future risk and thus avoid possible business crises
It is clear that business failure is the result of an economic complex in which multiple factors interact, both internal and external to the company itself; financial markets, the changing structure of productive markets, business strategies, the labor market or the economic policy of the administration, among many others. All this makes the task of evaluating the dynamics that a company will experience in the medium and long term difficult and complicated.
The new organizational order has significantly reduced the volume of defaults, bankruptcies, concordats and delays in the cancellation of credit operations, without forgetting that it is precisely in times of abundance where the application of a correct financial strategy can avoid imbalances and the acceptance of risks that converge in a situation that becomes a definitive coalition of the interests of all the actors that intervene in the company's productive process, when a recessive period occurs.
In this way, those determining factors of insolvency and failure of financial decisions must be identified and analyzed, improving and proposing new information systems that allow detecting specific risk situations sufficiently in advance.
Direct relation
Business risk may vary according to the fact that given the current globalization and the tensions of international markets, financial decisions depend directly on these factors.
The basic objectives in the financial policy of any entity must be analyzed with priority in the measures that will allow decision-making to minimize the future risk of business crises. For this reason, it is necessary to estimate that the techniques of risk analysis and assessment at this time acquire great capital relevance that justifies the interest in maintaining a high level of knowledge of the operations that the company carries out in the process of forming a strategic and financial plan that they lead to consolidation within the new order.
Market
In general, economic transactions are exchange agreements between two parties, whereby the seller agrees to deliver an asset in exchange for receiving an amount of money, or price, paid by the buyer.
Depending on when the assets are delivered, once the sale contract is formalized, there are two types of markets:
- Spot market
The exchange is made when the contract is formalized. Immediately
- Forward market
The exchange takes place on a future preset date.
Business risk
The current organizational models and their information structure present some deficiencies in terms of the measurement and assessment of the risk of obtaining the business benefit, thus hindering the decision-making of those responsible and users of this information, directly affecting the inflow of resources. through new equity investors.
Therefore, it is necessary to design the necessary tools for companies to present the information regarding the risk that is assumed by making or not making a productive or financial decision, this based on the principle regarding the real origin of risks, incorporating information on the different operational areas of the company and also on the environment in which the entity carries out its activity, analyzing separately and jointly the operational, financial, strategic and environmental risks. In this case, we will focus on managing financial risk.
Financial risk
On a daily basis, administrators must protect their company from the financial risks to which it is subjected. In the case of the company, the financial risks to which it is subjected are the following:
- Non-payment
When a product or service is sold, you may find that customers do not adequately comply with the payments and established deadlines, either because they do not want to or cannot.
- Variation in the interest rate
This occurs when a risk of variation in the interest rate is assumed when contracting a certain financing or investment, where depending on the type of operation and the variation supported, it will be faced with a more favorable or unfavorable situation.
- Risk country
The company is only subjected to this risk when it has to carry out a commercial transaction with certain countries, and it is given as a consequence of the blocking of foreign payments from that country.
Financial risk management
One of the financial risk control systems is the use of derivatives and futures.
Derivatives
A derivative product is any contract whose price depends on or derives from another main asset, which is commonly called the underlying asset. Derivatives trading enables price or market risk to be neutralized.
At first, the underlying assets were physical goods, mainly agricultural or livestock goods, that is, raw materials. Today there are very varied underlying assets such as metals, oil, electrical energy and also financial assets.
Types of derived products
- Futures Contract Options Contract Warrants
Futures
A future contract is a purchase and sale contract, postponed in time, where today the asset to be exchanged, the quantity, the price and the future date on which the transaction will take place are agreed. Futures are always traded on organized markets.
Both the buyer and the seller of futures accept some obligations, in front of the market expectations that each one has. The buyer receives the underlying asset, in exchange for paying the agreed price on the expiration date. The buyer expects to obtain benefits when the price of the underlying asset rises above the future price, since by having the obligation to buy cheaper than in the market and losses when the price of the underlying asset is below the future.
While the seller when delivering the underlying asset, in exchange for receiving the agreed price on the expiration date, expects to obtain benefits when the price of the underlying asset falls below the future price.
The options
They are contracts for the sale of futures by which the buyer acquires the right, but not the obligation, to buy or sell a certain amount of an underlying asset at a certain price, at a future date or at maturity. In exchange for this right, the buyer of the option pays the seller a premium. The types of options are:
- Purchase (Call)
In the purchase option (call), since the holder of an option has a right, but not an obligation, when the expiration date arrives, he will exercise that right only if it is financially convenient for him. This will happen if the market price of the underlying asset is, at maturity, higher than that of the year.
- For sale (PUT)
In a put option, the exercise of the option will be advantageous when the market price of the underlying is below the strike, since it will allow the asset to be sold at a price higher than the market price.
In the Futures and Options Market, futures contracts and options are traded on fixed income and variable income assets.
Regarding the implementation or use of derivatives and futures, the necessary information must be obtained to carry out the business risk analysis by describing each of the risks, providing feedback on the information that currently exists and the collection in existing application models. All this information will help in the valuation and evaluation of the information in order to obtain a set of risk indicators or measures that speed up the appropriate decision-making process.
The basic objectives in the financial policy of any organization must be analyzed with priority in the measures that at a time will enable decision-making to minimize future risk and thus avoid possible business crises
It is clear that business failure is the result of an economic complex in which multiple factors interact, both internal and external to the company itself; financial markets, the changing structure of productive markets, business strategies, the labor market or the economic policy of the administration, among many others. All this makes the task of evaluating the dynamics that a company will experience in the medium and long term difficult and complicated.
The new organizational order has significantly reduced the volume of defaults, bankruptcies, concordats and delays in the cancellation of credit operations, without forgetting that it is precisely in times of abundance where the application of a correct financial strategy can avoid imbalances and the acceptance of risks that converge in a situation that becomes a definitive coalition of the interests of all the actors that intervene in the company's productive process, when a recessive period occurs.
In this way, those determining factors of insolvency and failure of financial decisions must be identified and analyzed, improving and proposing new information systems that allow detecting specific risk situations sufficiently in advance.
Direct relation
Business risk may vary according to the fact that given the current globalization and the tensions of international markets, financial decisions depend directly on these factors.
The basic objectives in the financial policy of any entity must be analyzed with priority in the measures that will allow decision-making to minimize the future risk of business crises. For this reason, it is necessary to estimate that the techniques of risk analysis and assessment at this time acquire great capital relevance that justifies the interest in maintaining a high level of knowledge of the operations that the company carries out in the process of forming a strategic and financial plan that they lead to consolidation within the new order.
Market
In general, economic transactions are exchange agreements between two parties, whereby the seller agrees to deliver an asset in exchange for receiving an amount of money, or price, paid by the buyer.
Depending on when the assets are delivered, once the sale contract is formalized, there are two types of markets:
Spot market
The exchange is made when the contract is formalized. Immediately
Forward market
The exchange takes place on a future preset date.
Business risk
The current organizational models and their information structure present some deficiencies in terms of the measurement and assessment of the risk of obtaining the business benefit, thus hindering the decision-making of those responsible and users of this information, directly affecting the inflow of resources. through new equity investors.
Therefore, it is necessary to design the necessary tools for companies to present the information regarding the risk that is assumed by making or not making a productive or financial decision, this based on the principle regarding the real origin of risks, incorporating information on the different operational areas of the company and also on the environment in which the entity carries out its activity, analyzing separately and jointly the operational, financial, strategic and environmental risks. In this case, we will focus on managing financial risk.
Financial risk
On a daily basis, administrators must protect their company from the financial risks to which it is subjected. In the case of the company, the financial risks to which it is subjected are the following:
Non-payment
When a product or service is sold, you may find that customers do not adequately comply with the payments and established deadlines, either because they do not want to or cannot.
Variation in the interest rate
This occurs when a risk of variation in the interest rate is assumed when contracting a certain financing or investment, where depending on the type of operation and the variation supported, it will be faced with a more favorable or unfavorable situation.
Risk country
The company is only subjected to this risk when it has to carry out a commercial transaction with certain countries, and it is given as a consequence of the blocking of foreign payments from that country.
The basic objectives in the financial policy of any entity should be analyzed with priority in the measures that will at some point make it possible to make decisions to minimize the future risk of business crises
Financial risk management
One of the financial risk control systems is the use of derivatives and futures.
Derivatives
A derivative product is any contract whose price depends on or derives from another main asset, which is commonly called the underlying asset. Derivatives trading enables price or market risk to be neutralized.
At first, the underlying assets were physical goods, mainly agricultural or livestock goods, that is, raw materials. Today there are very varied underlying assets such as metals, oil, electrical energy and also financial assets.
Types of derived products
Futures contract
Options contract
Warrants
Futures
A future contract is a purchase and sale contract, postponed in time, where today the asset to be exchanged, the quantity, the price and the future date on which the transaction will take place are agreed. Futures are always traded on organized markets.
Both the buyer and the seller of futures accept some obligations, in front of the market expectations that each one has. The buyer receives the underlying asset, in exchange for paying the agreed price on the expiration date. The buyer expects to obtain benefits when the price of the underlying asset rises above the future price, since by having the obligation to buy cheaper than in the market and losses when the price of the underlying asset is below the future.
While the seller when delivering the underlying asset, in exchange for receiving the agreed price on the expiration date, expects to obtain benefits when the price of the underlying asset falls below the future price.
The options
They are contracts for the sale of futures by which the buyer acquires the right, but not the obligation, to buy or sell a certain amount of an underlying asset at a certain price, at a future date or at maturity. In exchange for this right, the buyer of the option pays the seller a premium. The types of options are:
Purchase (Call)
In the purchase option (call), since the holder of an option has a right, but not an obligation, when the expiration date arrives, he will exercise that right only if it is financially convenient for him. This will happen if the market price of the underlying asset is, at maturity, higher than that of the year.
For sale (PUT)
In a put option, the exercise of the option will be advantageous when the market price of the underlying is below the strike, since it will allow the asset to be sold at a price higher than the market price.
In the Futures and Options Market, futures contracts and options are traded on fixed income and variable income assets.
Regarding the implementation or use of derivatives and futures, the necessary information must be obtained to carry out the business risk analysis by describing each of the risks, providing feedback on the information that currently exists and the collection in existing application models. All this information will help in the valuation and evaluation of the information in order to obtain a set of risk indicators or measures that speed up the appropriate decision-making process.
