Preliminary communication
https://doi.org/10.20867/thm.10.3-4.8
RISK MANAGEMENT OF FINANCIAL DERIVATIVES
Elvis Mujačević
orcid.org/0000-0003-3991-9324
; Faculty of tourism and hospitality management, University of Rijeka, Opatija, Croatia
Vanja Ivanović
; Faculty of tourism and hospitality management, University of Rijeka, Opatija, Croatia
Abstract
Financial derivatives come in many shapes and forms, including futures, forwards, swaps, options, structured debt obligations and deposits, and various combinations thereof. Some are traded on organized exchanges, whereas others are privately negotiated transactions.
Derivatives have become an integral part of the financial markets because they can serve several economic functions. Derivatives can be used to reduce business risks, expand product offerings to customers, trade for profit, manage capital and funding costs, and alter the risk-reward profile of a particular item or an entire balance sheet.
Although derivatives are legitimate and valuable tools for banks and corporations, like all financial instruments they contain risks that must be managed. Managing these risks should not be considered unique or singular. Risks associated with derivatives are not new or exotic. They are basically the same as those faced in traditional activities (e.g., price, interest rate, liquidity, credit risk). Fundamentally, the risk of derivatives (as of all financial instruments) is a function of the timing and variability of cash flows. It is very important to understand the various risk factors associated with business activities and to establish appropriate risk management systems to identify, measure, monitor, and control exposure and risk associated with derivatives.
Keywords
financial derivatives; risk; market risk; credit risk; operational risk
Hrčak ID:
181426
URI
Publication date:
30.12.2004.
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