Chief Financial Officer and Risk Management
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1-RISK MANAGEMENT - What are some examples of risks that a CFO may help address? And how can any such risk be managed?
Please feel free to either: (1) list a number of the risks, or (2) choose one and go into a bit of detail.
Note that the discussion in Chapter 1 of risks goes from the bottom of page 4 to about the middle of page 6. This is one indication, in my opinion, that there are numerous risks that can face an organization and thus risk management or mitigation can be a key function for a CFO.
2- 2-ETHICS - Any comments regarding the importance of ethics in the CFO role?
Any suggestions regarding how ethics can be emphasized by example, training, and/or policies?
3-TREASURY RESPONSIBILITIES - What is meant by this term and how should the CFO be involved in this area? Also, how does "risk management" relate to treasury responsibilities?
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Solution Summary
This solution discusses the risks that are managed by the Chief Financial Officer.
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1-RISK MANAGEMENT - What are some examples of risks that a CFO may help address? And how can any such risk be managed?
Please feel free to either: (1) list a number of the risks, or (2) choose one and go into a bit of detail.
There are several risks that the CFO manages: These are:
Credit risks:
Market risks:
Foreign exchange risks,
Volatility:
Risks related to liquidity;
Risk of inflation:
Translational risks;
Transactional risks:
Let us consider Credit risks in some detail: This is the risk of loss because of a debtor's non-payment of a loan or line of credit. It is the role of the CFO to ensure that such a loss does not take place. When the business does not pay its principal amount or interest on time its credit rating gets revised. In other words it will have to pay a higher rate of interest. In addition, there are covenants that give some control to lenders if the borrowing business defaults. They can allow the lender to recall the loan when some specific ratios of the business deteriorate. Moreover, the lenders get the rights to follow the important ratios of the company. Finally, it allows the lender to restrict the company from borrowing more or paying dividends. The CFO needs to mitigate this ...
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