Managing Financial Risk

Managing Financial Risk – Charles W. Smithson

Interest rates, exchange rates and commodity prices can change rapidly, exposing businesses and financial institutions to significant risks. Over recent decades, derivatives such as forwards, futures, swaps and options have become essential tools for managing these risks. Managing Financial Risk, by Charles W. Smithson, a leading authority on risk management, provides a comprehensive guide to these instruments and how they are used.

The book explains the building blocks of financial engineering, showing how complex derivative products can be understood as combinations of a few basic instruments. It describes how forwards, futures, swaps and options work, how they are priced and how they can be combined to create customized solutions for managing financial exposures.

Smithson also examines why companies manage risk in the first place, exploring the theoretical and practical arguments for hedging and how risk management can add value for shareholders. He discusses how firms can identify and measure their exposures to interest rate, currency and commodity price risk, and how to design and implement effective hedging strategies. The book covers developments in the derivatives markets, the uses of more complex instruments and the management of credit and other risks associated with derivatives.

Combining theory with practical examples, the book is written for practitioners as well as students.

Managing Financial Risk is a valuable reference for finance professionals, corporate treasurers, risk managers, bankers and advanced students of finance. Readers should note that financial markets, products and regulations have evolved considerably since publication, so the book is best used alongside current resources.