?

WHY MANAGE

RIS
K

Dwiki H.
A.
29114774

Samodro Bagus
29114862

Edwin LumentaSurya Gara

2911760
29114779

Made by:

Riezka Susanty
29114835

YP51A

c la ss

 Financial Risk can be defined as

the exposure of a companys
earnings, cash flow or market
value to external factors such as
interest rates, exchange rates, or
commodity prices

VARIOUS WAYS TO

1 | Hedging
2| Insurance

MITIGATE
RISK
completely eliminates an exposure,
eliminating both upside and downside

Provides protection against the

financial effects of unfavorable events

up the risk by spreading into

3| DiversificationSplit
several smaller portions

IMPERFECTION

THAT MAKE RISK

MANAGEMENT RELEVENT
1. Financial Distress
2. Investment Policy
3. Tax Effects
4. Transaction Costs
5. Asymmetric
Information

1# FINANCIAL DISTRESS
Condition where the company are having a hard time
covering the company's liabilities, this means that the
liabilities are bigger than the company's assets.
Financial distress Indicators
1. Employee Laid-off
2. No more Dividend Payment to the shareholder
3.Cash floware smaller than long-term liabilities
4. Net Income are in the negative for 3 years in a row
By using risk management, company's can decrease the
likelihoodof financial distress

2# INVESMENT POLICY
Company would able to predict more certainty its
future cash flow regarding to the investment.
They need steady capital to the long term investment
to carry out their value in maximizing strategies.

3# TAX EFFECTS
The method to calculate tax would effect the cost that
paid for the tax
given tax rules, income $100, tax bill is $10
income $200, tax bill is $22
income $300, tax bill is $40
Ex: our income $100 and $300 = 200
if lock in average income, taxes is $22
but the actual is $25 (50%*$10 + 50%*$40)
Ex: 100, 300, 500, 200 = $300
if lock in average, taxes is $40
but the actual is 30.5 (0.25*10 + 0.25*40 +
0.25*40 + 0.25*22)
When the actual is higher is good but when lower is
bad

4# TRANSACTION COST
When the investor is precluded by law or regulation
from engaging in risk management activities, better
for investor to have corporation management risk
The transaction cost would be higher if the firms want
to gain safer condition such as paid third party

5#ASYMMETRIC

INFORMATION

Information disclosure can affect the suitability of

financial risk management.
Lack of information may lead firms to underinvest.
Total exposure to non transparent financial risk may
cause shareholders unable to manage the risk
optimally or efficiently.
Corporate hedging activities can reduce the
disturbance that affect managerial effectiveness, thus
improving the information of the firm's reported
profits.
Management can further use this information to make
more optimal decisions regarding projects or to set
managerial wages..

6# MANAGERIAL
CONCERNS

focusing on how manager to taking risk without his

closely ties fortunes employees to create value to the
company

CONCLUSIO
N
In an ABSTRACT world RISK
MANAGEMENT is IRRELEVANT, but in the
real world where IMPERFECTION exist

I S K M A N A G E M E N T A R E R E L E VA N