recommend the tower associate to use foreign exchange hedging strategy
I would recommend the tower associate to use foreign exchange hedging strategy. The strategy will be used in managing different risks like liquidity risk, sovereignty risk, foreign exchange risk, and insolvency risk. Due to the political transition, the economy is expected to lower due to the political risks. The foreign exchange hedging strategy is used to manage the different risk that affects the economic performance of a country. Country C is expecting a political leadership change that is also expected to cause growth prospects impact in a country. By use of country risk crisis management will enable the country to overcome this political risk. The country should come up will agreement where all corporations in the country will have a financial compensation. This will reduce the risks that are associated with the political crisis in the country since the corporations will have a strong political base during this period. The country should provide tax relief to these companies during that period and providing them with subsidies to provide a conducive environment for them. The country should also keep the economy in track during the leadership transition period to reduce negative impacts that can be resulted from this change. Since the government may experience a budget deficit during this period, it should source funds externally. Through borrowing it will be able to finance all of its sectors by reducing the deficit in the provision of all of its services during that economic hardships.
Question 5)
The tower associates should take the following steps to mitigate and manage the liquidity risk, foreign exchange risk, sovereignty risk, insolvency and credit risks.
Step 1 identification of risk
The tower associates should access, recognize and unconverted the risks that may occur. This will enable them to be aware of the risk and come up with measures to curb it in case of the occurrence.
Step 2 analyzing the consequences of risk.
Immediately after the tower identifies the risk occurring, it should determine the consequences and the likelihood of the risk. The tower associates should understand the risk of nature and the effects of the objectives and targets. This will make it be able to determine the degree of the occurrence
Step 3 evaluating potential results
In this step, the Tower is required to rank and evaluate the risk of its potential results. These impacts are to be determined by combining the occurrence of livelihood and the effects and consequences that it may have. The tower then will be able to identify whether the risk identified is acceptable by knowing of the risk has a high impact on its target and objectives. It will also be able to know if the risk is serious or it can cause a high impact.
Step 4 Treatment of risk
In the treatment of the risk, the tower association should have a list of all of the riks that it has identified. These risks should be ranked from the highest down to the lowest on the degree of occurrence. It should also have a plan on how these risks should be treated by ranking them from the highest to gain an acceptable plan. This may be done by using mitigation strategies of the risk, contingency or preventive plans with risk treatments that include avoidance, sharing, reduction, and retention.
Step 5 Reviewing and monitoring
The risks should be regularly reviewed, monitored and tracked by the Tower associates. It should also be implemented to provide targets and objectives achievement.