Showing papers on "Financial risk published in 1991"

System and method for electronically providing customer services including payment of bills, financial analysis and loans

Abstract: A computerized payment system by which a consumer may instruct a service provider by telephone, computer terminal, or other telecommunications; means to pay various bills without the consumer having to write a check for each bill. The system operates without restriction as to where the consumer banks and what bills are to be paid. The service provider collects consumers' information, financial institutions' information and merchant information and arranges payment to the merchants according to the consumers' instructions based on a financial risk analysis.

Sensation seeking and financial risk taking in everyday money matters

Abstract: The present study investigated the degree to which the previously established relationship between sensation seeking and risk taking associated with gambling could be extended to everyday financial matters (e.g., personal banking activities). The subjects, classified into high and low sensation seekers, were asked to make a series of everyday financial decisions that varied in their degrees of risk. Overall, the results indicate high sensation seekers displayed greater risk-taking tendencies in everyday financial matters than low sensation seekers. This difference in everyday financial risk taking between high and low sensation seekers was also found within each gender group. Implications and suggestions for future research involving sensation seeking in other personal and professional financial decision-making areas are also presented.

Public perception of the risks of floods: implications for communication.

Abstract: Floods in the U.S. kill an average of 162 people each year and cause $3.4 billion in property damage. Flood control programs have been successful in lowering, but not eliminating, the risks to lives and property. Since the late 1960s, the federal government has emphasized flood insurance as a primary tool for improving location and flood-proofing decisions, as well as for reimbursing flood losses. Since only 12.7% of houses in flood plain areas are covered by flood insurance, the program has been ineffective. We interviewed people living in three communities that had recently been flooded. Most people had little knowledge of the cause of floods or what could be done to prevent damage. People who work and who are better educated know more and are more likely to have flood insurance. Current government publications about flood risks are not likely to be understood by those at risk. There is little effective communication about the nature and magnitude of the risks and what individuals can do to protect their lives and property and lower their financial risks. The risk management program should both emphasize communication and enforcement of the current law requiring people at risk who hold federally funded loans to be insured.

A contingent claim analysis of a regulated depository institution

Abstract: A model of financial intermediation to determine the market value of bank equity, deposits and deposit insurance is developed. The implicit equilibrium interest rate on deposits is derived and analyzed. Three types of risks are considered in the model: interest-rate risk, financial risk and default risk. The effect of different regulatory measures, such as capital adequacy, reserve and liquidity requirements, deposit insurance and interest rate ceilings is analyzed and their impact on the bank behavior is also assessed. Moreover, we investigate the interactions among these measures to determine which are dominant under alternative circumstances, and which are redundant.

Asset diversification, firm risk, and risk-based capital requirements in banking

Abstract: The implications of diversification by firms for risk has been raised particularly in connection with conglomerate mergers. This issue is of special interest in banking now because of a recently implemented policy — risk-based capital guidelines. This study presents results of an empirical investigation into the relationship between diversification of a bank's financial assets and indicators of the risk of insolvency. Results indicate that financial asset diversification, as well as geographic diversification, are related to lower risk.

Research Needs in Corporate Finance: Perspectives from Financial Managers

Abstract: A profile of needed research in corporate finance is developed based on a survey of financial managers. Research needs are perceived to be the greatest in the areas of regulation and ownership. The area of long-term financing represents the third most important category. Alternatively, financial managers consider operational financing to be the least important area in terms of research needs. Write-in comments, in general, indicate a particularly strong need for research in two distinctive areas: the effects of globalization and the use of hedging tools to reduce financial risk.

Incorporating economic risk aversion in agroforestry planning

Abstract: The ability to use a knowledge of past market price fluctuations to reduce the risk of future financial returns is explored in the context of planning an agroforestry system with a cash crop component. It is demonstrated that if past crop price behavior is indicative of future price behavior, planting crops with stable and/or negatively correlated net revenues can reduce the variance of future net revenues and hence decrease the financial risks of agroforestry systems.

Financial Risk Analysis of Infrastructure Debt: The Case of Water and Power Investments

Abstract: Foreword by David Bendel Hertz Preface Introduction Concepts and Procedures Financial Risks in the Construction Period Revenue Risk--Rate and Demand Factors Revenue Risk--The Customer Base Applications Reflections on the Method Appendix Bibliography Index

Strategic risk management : how global corporations manage financial risk for competitive advantage

Abstract: Increased volatility in the world's commodity markets and expanding opportunities to find cheaper financing are just two of the reasons why multinational corporate treasurers have developed strategies to reduce risk and enhance profits. "Strategic Risk Management" provides you with both the theory and practice of strategic risk management. The first part of the book explains what strategic hedging is and how it works in the real world of corporate finance. Part 2 discusses hedging strategies used by corporate giants such as Company Computers Eastman Kodak, Pitney Bowes, Baxter International and Merck & Co. Case studies show how each company developed successful strategies, took advantage of the new financial instruments and overcame the risks while reaping the rewards.

Risk management in sub-Saharan Africa

Abstract: This paper investigates the vulnerability of countries in sub - Saharan Africa to uncertainty about commodity prices, exchange rates, and interest rates. It discusses some of the instruments these countries can use to manage financial risk and conclude that instruments linked to commodity prices would significantly reduce their risk. To account for possible interactions between external risks, the paper estimates the optimal portfolio of financial instruments for sub - Saharan Africa. It shows that the risk-minimizing portfolio for sub - Saharan Africa comprises only about 30 percent of general-obligation loans and about 70 percent of loans for which repayment obligations are indexed to the price of sub - Saharan Africa's most important exports: cocoa, coffee, cotton, copper, and oil. This portfolio reduces by about 90 percent the uncertainty of sub - Saharan Africa's resources available for imports. The risk-reduction benefit of the optimal portfolio is fairly stable for specific commodities included and for the specific period for which it is estimated.

Applying FAS no. 105: Financial instruments with off‐balance‐sheet risk

Abstract: In connection with preparing their year-end 1990 financial statements, companies will find themselves grappling with the requirements of Statement of Financial Accounting Standards No. 105, Disclosure of Information about Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risk, for the first time. Although SFAS 105's disclosure standards seem relatively simple, implementing them will require management's active involvement, particularly with respect to identifying significant concentrations of credit risk. In addition, as the first Statement issued under the aegis of the FASB's financial instruments project, SFAS 105 contains definitions and concepts whose implications extend beyond its immediate scope.

Generalized Arrow Pricing to Understand Financial Markets

Abstract: Most of the concepts that are used in modern theory of financial markets are contained in a paper published by Arrow in 1953. Arrow’s model generalizes to non finite set of states describing uncertainty so as to encompass general financial assets pricing. We present several theorems of equivalence between General Equilibrium and Perfect Foresight Equilibrium (PFE), a concept adapted to financial assets markets. These results put forward several points: The welfare properties of PFE, or in Arrow’s term, the “role of securities in the optimal allocation of risk”. The role of the complete market hypothesis (CMS) and the reason why it takes an abstract mathematical form in modern finance. The probabilistic interpretation of assets prices under the CMS hypothesis. This interpretation extends to dynamic models (as the equivalent martingale property) and allows the pricing of assets by their expected payments. The necessary properties of equilibrium prices which are well defined by a linear, positive, continuous form. These properties are equivalent to three “no arbitrage” conditions that can be found in finance models without reference to equilibrium.

Risk Factors in Oil and Gas Lending-New Financing Alternatives

Abstract: This paper reports that with the increasing internationalization of the petroleum industry, lenders to the industry must understand and overcome several new credit risk factors. As a result, new financial products are now available to reserve-based borrowers. Traditional project financing now also may include futures hedging, swaps, and collar elements.

The market's evaluation of off-balance sheet banking risk: a methodological reexamination

Abstract: THE MARKET'S EVALUATION OF OFF-BALANCE SHEET BANKING RISK: A METHODOLOGICAL REEXAMINATION The empirical literature, to date, has ignored the impact of Off-balance sheet (OBS) banking activities on the default-risk premia borne by bank subordinated debtholders. This paper examines the "market discipline" of OBS activities by employing a contingent claims pricing model to the default-risk premia on subordinated debt. The standard approach to determine if market prices of subordinated debt reflect the risk of default is to regress the yield spread against accounting measures of bank risk. This approach is inadequate because yield spreads are neither linear nor monotonic functions of bank risk. Moreover, this approach fails to account for the fact that banks are regulated. Observed yields on subordinated bank debt over equivalent maturity treasuries are used to compute implied asset variances. OBS banking activities appear to reduce both linear risk-premia and implied asset variances. These results suggest that bank regulators are overly concerned with the risk exposure of OBS activities. The risk-based capital requirement of OBS banking activities may be inappropriate.

A general model of insurance and investment risk diversification

Abstract: This article presents a model of insurance and investment risk diversification. An in-depth analysis of the mathematical formulation of the risk is presented. In this regard, we introduce a new concept called the substitution principle to formulate the model rigorously. We show that, if the investment risks are normally non-linear, the insurance risks are linear in nature. This proves that the well-known diversification principle has to be viewed differently in finance and in insurance.

Financial risks to fundholding practices

Abstract: This study shed as much light on surgery as on anaesthesia, since the two activities are so closely interwoven in the care of surgical patients. Nevertheless, neither of two of the bodies that represent surgeons was keen to be involved when they were approached in the planning stage. When the results were analysed it was obvious that deficiencies in anaesthetic care were much less common than those in surgery. The Association of Anaesthetists therefore sought support for a larger study which could serve as a blueprint for a national audit, and we worked hard to ensure that this time it would be a joint anaesthetic-surgical effort. With indications of support from the Association of Surgeons, Professor Michael Rosen and I (as treasurer and president, respectively, of the Association of Anaesthetists) obtained the necessary financial support from the Nuffield Provincial Hospitals Trust and, later, the King Edward's Hospital Fund for London. A joint working party was set up under my chairmanship to plan and execute the study. Mr Devlin was one of four nominees of the Association of Surgeons and was chosen to be one of the two surgical coordinators; the problems of anaesthesia were handled by a single anaesthetic coordinator, Dr John Lunn. The clerical and administrative staff were housed initially by the King's Fund but then by the Association of Anaesthetists in Bedford Square. The study did indeed identify many problems in surgical services,' and both professional associations supported an approach to the Department of Health, which readily provided the funds for the continuing national confidential inquiry into perioperative deaths. Impartial readers may wonder how this story could have been put over without use of the word anaesthesia and with only a single passing reference to \"committees ofsurgeons and anaesthetists\"-yet such was the prominent role given to Mr Devlin in the programme that this feat was achieved. No doubt, as Dr Ruta divines, the producer wished to make an \"attention grabbing\" programme, but one can only marvel at a medium that can transmute a long planned sequence of events, involving the cooperation and good will of hundreds of participants in three major specialties (anaesthesia, surgery, and gvnaecology), the support of charities, and the active encouragement ofagovernment department, into one man's crusade to improve the standard of British surgery. Unfortunately, as Dr Ruta's review shows, it is apparently quite easy. I only hope that the programme will not do too much damage to the warm and effective collaboration that has resulted from our initiative. M D VICKERS

Opportunities and pitfalls of international futures markets trading by developing countries: the case of Zaire coffee exports

Abstract: Profitable direct and cross hedging opportunities exist for Zaire coffee hedgers, and some periods may offer significantly superior opportunities. External events and internal policy changes contributed to instability of Zaire hedge ratios. The importance of internal economic and financial changes must be considered to supplement international coffee market information. Other Third World Countries should consider the potential of using international commodities and financials futures markets for information and risk management in the trade of raw materials but be aware of changes in market and financial risks relative to their domestic situation.