Role Of Financial Instruments Research Articles

The Role of Financial Instruments in Corporate Exchange Rate Risk Management

As international investment increases with the process of economic globalization, managing exchange rate risk efficiently has become one of the most significant strategies for companies to reduce risk and make more profits. Due to the need to consider numerous internal and external factors, risk management is a sophisticated decision that executives need to make effectively. On the basis of accentuating the magnitude of hedging exchange rate risk for corporations and combining previous research findings and theoretical analysis, this research introduces some pragmatic approaches for firms to choose and utilize suitable financial instruments in hedging exchange rate risk, such as the rational use of financial instruments to hedge risks, the use of short-term and long-term foreign currency derivatives to reduce exchange rate risks, and the impact of board structure on hedging activities. The content of the analysis can provide companies with a deeper understanding of the ways to select and utilize the most appropriate financial instruments for risk management, thus improving corporate efficiency and achieving corporate objectives. The study would act as an available tool for corporations to improve efficiency and achieve their goals.

Renewable Energy and Energy Efficiency: European Regional Policy and the Role of Financial Instruments

The study aimed to evaluate whether the regional funds allocated for energy efficiency and renewable energy are related to the quantity of air pollutants discharged and the stage of regional development, and whether the evidence of convergence of regional levels of renewable energy electricity generation can be provided. A comparative analysis of financial instrument implementation within regional programmes was conducted, with a particular focus on instruments dedicated to enhancing energy efficiency and utilising renewable energy. To verify the research hypotheses, statistical coefficients of correlation and concentration, along with trend and econometric models were applied. The findings have confirmed the rise in regional funds for energy efficiency and renewable energy, along with the growing importance of financial instruments in transforming the energy sector. The hypotheses that air pollutant emissions per unit of GDP generated are decreasing, there exists a regional convergence of renewable energy production per capita, and the spatial accumulation of renewable energy production is declining, have been confirmed. No correlation was found between the regional economic development and the level of funds allocated to energy efficiency and renewable energy. The lack of such relationships provides a convincing argument for appropriate state regulation.

Financial instruments as a source of facilitating diversification strategy implementation for enterprises

This article focuses on the role of financial instruments as a crucial source for the successful implementation of the diversification strategy for enterprises. Diversification has become an essential tool in ensuring the stability and competitiveness of enterprises in a dynamic market environment. The article explores various financial instruments that can be utilized by enterprises to secure the required funding for new projects and the development of new business directions.

The Role of Financial Instruments in Solving the Global Climate Crisis

Despite the accumulation of scientific evidence for an anthropogenic role in global warming, the response in terms of international action remains rather disappointing. The Kyoto Protocol failed to create an international coalition in favour of a carbon price in relation to its social cost and served to illustrate the intrinsic instability of any international effort which does not take the “free-rider” problem seriously. Any international agreement must meet three criteria: economic efficiency, incentives to meet commitments and equity. Efficiency is only possible if all countries apply the same carbon price. An incentive may entail offering some flexibility regarding “free riding.” Equity, a concept whose definition differs depending on the stakeholders involved, can be achieved through flat-rate transfers. The strategy of a voluntary reduction of carbon emissions, such as that adopted by key countries, is a further example of choosing to postpone clear commitment, while, in the meantime, paying insufficient attention to the financial instruments available.

Financing energy efficiency retrofits in Chilean households: The role of financial instruments, savings and uncertainty in energy transition

High firewood consumption for heating produces high levels of pollution in cities in central and southern Chile, with serious consequences for health and quality of life. Energy efficiency measures (EEMs) have been identified as the best strategy to reduce air pollution and maximize social benefits. However, their adoption has been slow. The objective of this article is to investigate household preferences for financial incentives needed to promote private investments in EEMs in Central-Southern Chilean households and study the role of energy savings and the uncertainty about potential savings in the investment decision, with the aim of finding solutions to increase the adoption of these technologies. We use a choice experiment to explore the trade-off between the investment costs, financial instruments, energy savings, and the uncertainty about achieving the theoretical savings provided by engineering and architectural models. The results show that financial instruments play the most important role in this decision, followed by the savings achieved by the retrofit. Householders prefer to finance their investments with a mix of their personal resources and medium-term credits, trying to avoid long-term commitments. Although uncertainty was found to be a significant variable, it seems to play a small role in the investment decision.

The theoretical basis of financial instruments research in the world economy system

The results of research on the theoretical basis for determining the nature and role of financial instruments in the world economy system are presented in this article. The systematization of the theoretical research approaches of financial instruments in the world economy system, determination of derivatives market factors which influence the development of international business, as well as justification of scientific and practical recommendations for improvement of derivatives market infrastructure management are the purpose of this research. It has been noted that the fact that international business subjects reach their efficiency limits (in terms of income and expenses) for a number of reasons, both subjective (shortcomings of the control systems used by them) and objective (the impossibility of further reducing costs due to the limitations of existing technology production and demand for products) encourages economic actors to search for new opportunities for obtaining economic benefits including usingfinancial instruments, particularly, derivatives. In the course of the research the types of financial instruments, conditions of stable derivatives market functioning have been analyzed, as well as derivative financial instruments market factors which influence the development of the international business have been identified. Over the course of the research the peculiarities of internal and external regulation of derivative financial instruments market have been identified. The author proposes scientific and practical recommendations on derivative financial instruments market infrastructure management improving in the world economy system, in particular: 1)improving the risk management system for derivative financial instruments and basic assets with the most extensive range of participants in this market; 2)the establishment of rational requirements for the amount of equity capital of market participants, taking into account both price and interest, and credit risks; 3) improving the quality of statistical reporting standards with disclosure of information for public access; 4) reforming legal rules related to offsetting agreements and the bankruptcy of multinational corporations; 5) coordination of actions of national and international authorities in the regulation of markets for derivative financial instruments on a global scale.

The Role of Financial Instruments in Reducing Exchange Rate Risk

Companies that transact in different currencies face financial risk because of unpredictable exchange rate fluctuations. Exchange rate risk constitutes one of the most common forms of risk that firms in the international arena encounter and, in recent years, the management of this risk has become one of the key factors in overall financial management. Measuring and managing exchange rate risk exposure is important for reducing a firm’s vulnerabilities from major exchange rate movements, which could adversely affect profit margins and the value of assets. The main purpose of this paper is to show the role of derivatives in reducing exchange rate risk. This paper treats the nature of these financial instruments and shows how they can be used to manage foreign exchange risk or enter into speculative positions of currencies movements. DOI: 10.5901/ajis.2014.v3n2p371

Oil Markets and Price Movements: A Survey of Models

During the 1970s, oil market models offered a framework for understanding the growing market power being exercised by major oil producing countries. Few such models have been developed in recent years. Moreover, most large institutions do not use models directly for explaining recent oil price trends or projecting their future levels. Models of oil prices have become more computational, more data driven, less structural and increasingly short run since 2004. Quantitative analysis has shifted strongly towards identifying the role of financial instruments in shaping oil price movements. Although it is important to understand these short-run issues, a large vacuum exists between explanations that track short-run volatility within the context of long-run equilibrium conditions. The theories and models of oil demand and supply that are reviewed in this paper, although imperfect in many respects, offer a clear and well-defined perspective on the forces that are shaping the markets for crude oil and refined products.

The Role of Financial Instruments in Integrated Catastrophic Flood Management

The main goal of this paper is to develop a flood management model that takes into account the specifics of catastrophic risk management: highly mutually dependent losses, the lack of information, the need for long-term perspectives and explicit analyses of spatial and temporal heterogeneities of various agents such as individuals, governments, and insurers. We use modified data from a pilot region of the Upper Tisza river, Hungary, to illustrate the evaluation of a public multipillar flood loss-spreading program involving partial compensation to flood victims by the central government, the pooling of risks through a mandatory public catastrophe insurance on the basis of location-specific exposures, and the demand for a contingent ex-ante credit to reinsure the insurances liabilities. GIS-based catastrophe models and stochastic optimization methods are used to guide policy analysis with respect to location-specific risk exposures. We use economically sound risk indicators leading to convex stochastic optimization problems strongly connected with nonconvex insolvency constraint, VaR and CVaR.

Fair value accounting : an overworked issue over the past fifteen years

Fair value accounting is a contested issue, criticised by many as artificially creating volatility and amplifying market inconsistencies, and lauded by others as being the only way of accounting for the full reality of a company's situation, including its off-balance sheet items and financial instruments. This article deals with the fair value definition, the role of financial instruments and its impacts on market volatility. It aims to afford renewed credibility to their use, by improving the transparency of financial information by applying uniform rules governing how they are valued and accounted for. JEL classifications : G14, M41

La juste valeur : un serpent de mer depuis bientôt quinze ans

The enigmatic fair value Fair value is blamed for increasing artificial volatility and market inconsistency. However, fair value is, also, considered as able to give a true measurement of firm's value, including its financial instruments and off balance sheet items. The author explains fair value, the role of financial instruments in this accounting and the possible influence of fair value on market volatility. This article tries so to justify fair value accounting standards because they improve financial information with international and standardized rules. JEL classifications : G14, M41