Financial Risk Reduction Research Articles

Hedging financial and business risks in agriculture with commodity‐linked loans

One of the particular problems facing agribusiness firms is the relationship between commodity price risk (a source of business risk) and debt repayment ability (a source of financial risk). This study examines the use of commodity‐linked loans applied to agricultural credits. A commodity‐linked loan is a credit instrument whose payoff is contingent on the value of an underlying commodity or portfolio of commodities. The payoff structure includes an option (call or put) rider that provides a payoff if the commodity price rises above or drops below a preset strike price. The payoff is applied directly to the loan. This study introduces the general concept, reviews the literature, and develops and applies a particular model. Simulation results illustrate the interrelationship between options payoffs, strike prices, volatility, and downside financial risk reduction.

Risk response techniques employed currently for major projects

Risk management is fundamental to the success of a major project. However, the variations in using risk management practices are considerable and are dependent on numerous factors such as the industry sector, the size of the project, and the stage in the project life cycle. One of the major constituents of successful risk control is the use of risk response. This paper concentrates on the choice and use of the most successful risk response techniques within the oil and gas industry and compares them with the use of those chosen by the construction industry. Results were ascertained through a survey of over one hundred companies within these two sectors by use of an extensive questionnaire. The main conclusions are that risk reduction as a response to assessed risks is most commonly used by both sectors; and that the construction industry concentrates almost exclusively on reduction of financial risk. It is proposed that the construction industry can benefit greatly from the more experienced oil and gas industry in managing technical risk which, with the advent of private funding, is likely to become a more predominant part of construction procurement.

Outcomes Management

Providers and consumers currently are challenged to move the payer-driven health care system toward a patient-driven model. Described as disease management, this system would be based on prevention and the natural course of disease, providing care across the continuum. Creating the new system will demand the measurement and management of health outcomes to facilitate practice delivery within a scientific framework. Outcomes management provides this framework, enabling the development of best clinical practices, informed consumer decision making, prediction of resource consumption, identification of consumer expectations, and reduction of financial risk.

Re-rating your price earnings (P/E) multiple

Price earnings (P/E) multiples are commonly used by corporate financial managers as a measure of corporate performance and as a measure of corporate value. With this article an analysis of 74 companies is presented. Each company significantly changed its P/E multiple over a period of three years. The analysis shows that a 2% improvement in operating profit margin or a 2% reduction in financial risk achieved a 1% improvement in the P/E multiple. To a lesser extent, an improvement in the current ratio and in net asset value also resulted in an improved P/E multiple.

A New Generation Patient Classification System

The traditional approaches to monitoring reliability and validity are time consuming and costly and frequently lead to the abandonment of reasonable classification instruments. With the advent of micro computers and relational database software, nursing executives are now able to track reliability and validity on an ongoing basis. Because patient classification data are retained, they can be used to provide more accurate work load predictions and descriptions. Further, the ability to identify the source of problems with unit-specific instruments or nurse classifiers leads to the required corrective mechanism. Increased confidence in the reliability and validity of the work load data provides the staff nurse with direct evidence of the accuracy of the patient classification instrument and the nursing executive with a significantly stronger tool in budget planning and tracking, contract negotiations and financial risk reduction.