We provide Financial Risk Management and Structured Finance advisory services. We help you generate improved profitability and the services we offer are always tailored to your unique circumstances.
Our core services
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Financial Risk Management |
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Structured Finance |
| JCRA provide totally independent advice on the viability of alternative forms of finance... [+ more] |
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Commodities |
| JCRA provide experienced independent advice to participants in the commodities markets... [+ more] |
Financial Risk Management
Foreign Exchange Risk
Transaction Risk
- Rates at which foreign currencies are actually received or paid can move adversely between entering a contract and receipt or payment
- Athough appearing obvious, transaction risk is often misdiagnosed and hence mismanaged (where not only the existence of risk but even the true currency at risk is mistaken)
- Risk is based not only on the headline ("spot") rate, but also on potential interest rate adjustments in both currencies for forward dates
- Transaction risk affects the viable import and export of goods, services and commodities, payments and receipts of interest payments and earnings, private equity acquisitions and disposals and fund portfolio adjustments and rollovers
- It is impacted by unseen changes in liquidity, depth of tenors and even capital controls, varying from currency to currency
- It can be hedged effectively, efficiently, transparently, flexibly and cheaply
- It is often hedged ineffectively, inefficiently, opaquely, inflexibly and expensively, where only the bank fully understands the contract
Translation Risk
- Volatility in exchange rates at which overseas assets and liabilities are revalued risks substantial losses
- Exposures are long-term, even infinite in tenor, hence awkward to manage
- Translation risk should be managed carefully to reduce the risk of cash calls by banks, if the hedge itself incurs losses
- Sufficient long-term foreign exchange lines may not always be easily available
- More credit-efficient strategies are often required, preferably with zero net premium
Covenant Risk
- Currency volatility can cause mismatches in overseas assets and liabilities to widen
- This can lead to passive breaches of loan covenants, even where underlying business conditions and asset values are stable
- Careful assessment of covenant conditions can lead to more efficient hedge solutions
For more information please contact James Stretton at info@jcra.co.uk or call on 020 749 33310.