Financial Hedging and Its Instruments Research Paper

Financial hedge and Its Instruments - Research Paper ensampleThis report evaluates the financial instruments in light of the risk management system of three different companies. A personal view has been given after the analysis part. However, there have been certain constraints while conducting the analysis, as companies do not prefer to reveal much about their positions in hedging instruments.The financial crisis of the nineties created enormous disruption and imposed huge costs of lost output in a take of emerging securities industry economies. The crisis was particularly painful as local organisations had to face large exchange appreciate or interest rate risk with insufficient hedging possibilities. At this time, as the market was kind of illiquid, even the massive undervaluation of assets was unable to attract foreign investors. This was the consequence of the companies inability to hedge certain types of market risks. As a consequence, the prospective benefits of global financial market integration were not fully exploited.However, all over the past few years, the markets for hedging have expanded in size and scope. The establishment of bond and head foreign exchange markets and derivative products has helped to enhance the hedging processes. The ever-growing significance of the hedging instruments has been established by the event that trading activities in the futures market on money instruments have been larger than the conducts in the underlying cash market. These days a number of instruments have been used to hedge the assets and commodity price risks. However, the fundamental structures of these instruments atomic number 18 kept almost same across all financial markets (Mathieson, Development of Market Based Hedging Instruments).Many organisations buy insurance against a wide range of hazards on their assets. By purchasing insurance, the companies make pass on the risk to the insurance company this is done for a certain amount of insura nce premium. However, the risks, cover by these kinds of financial instruments, have less probability of occurrence as compared to other financial risks.