Risk Management Diversified Worldwide Industries Research Proposal

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Numerous products are available, including currency or exchange rate swaps, forward contracts, futures and options. Another option, which covers some of the translation risk as well, is to index costs and revenues to the exchange rate. Translation risk is more difficult to address, but there are methods. DWI can build an operational hedge, whereby inflows from a particular country are matched by outflows. Other tactics, such as using an average exchange rate for the entire income statement or balance sheet, can mitigate the risk but not eliminate it.

Economic risk is a significant form of risk because many of DWI's industries are cyclical. This risk is less critical for DWI because the company is well-diversified across many industries and countries. This is an operational hedge against the impacts of a faltering economy against any one of our businesses.

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However, some economic risk still remains. It can be hedged by establishing a link between interest rates and company earnings, using this to set up an ideal capital structure. What this means is that if DWI understands how its businesses react to interest rate changes, it can devise a capital structure that provides a hedge against those changes (Francis, 2002).

In addition to these major risk forms, we can of course help to mitigate our risk by securing local counsel, local accounting services and developing a keen understanding of local culture. DWI has significant exposure to many forms of risk. By using some of the basic hedging strategies outlined above, we can reduce risk not only in each business but firm-wide as well.

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