PROPERLY implementation of financial risk management tends to limit the negative impact to businesses, according to a markets expert. Standard Bank's Executive and Head - Client Solutions, Africa Regions, Global Markets - Reginald Mlangeni said that a currency hedging strategy could protect a company if the value of a currency falls sharply.
"All companies are exposed to market risks arising from a combination of business activities. This may result in currency and interest rate risks," he said. Standard Bank trades as Stanbic in the country. Mr Mlangeni said these market risks have a great impact on profitability and operations of the company.
"Having identified these risks, companies should be in a position to follow proper risk mitigation procedures by using derivative instruments to moderate their exposures," he said.
Mr Mlangeni said that in Arusha recently during an eye opening hedging session organised by the bank for its commercial and corporate clients. The forum discussed effective ways on how to manage currency and interest rate risks in their businesses, in a bid to effectively address currency and interest rate risk at the systemic level.
Stanbic is amongst the few banks that currently offer foreign currency and interest rate hedging solutions in the country. Hedging is a risk management strategy used in minimising or offsetting probability of loss from fluctuation prices of commodities, currencies or securities.
Stanbic's acting Head of Global Markets, Ester Manase mentioned the potential instruments that could be used for the purposes of managing risks as interest rate swaps, forward contracts, currency and interest rate options.
"We assist clients in identifying risks resulting from their chosen funding and operational frameworks, exploring optimal solutions for mitigating these risks," she said.