Risk Panel Financial October 27, 2008 Financial Risk Management - - PDF document
Risk Panel Financial October 27, 2008 Financial Risk Management Panel Brent Callinicos, Treasurer, Google Fx Risk Management Jim Colby, Assistant Treasurer, Honeywell International Interest Rate Risk Management Dennis
October 27, 2008
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– “US airlines face billions of dollars in extra costs from soaring fuel prices suffered some USD$10 billion in losses last year.” – “Delta, American and Continental are the three major US airlines which have the least hedging to protect them from jet fuel prices…”
– United, Citing Fuel Hedging, Loses $779 Million in Quarter – “noncash charge that reflected the declining value of its hedging contracts for jet fuel” – “Southwest said it lost $120 million, its first loss in 17 years, because of its own charge to reflect the declining value of hedge
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– I can always bet more – The dealers due for a bad streak – I lost money but I had fun and got free drinks
– I am average costing my hedge – AUD will revert back to historic mean – I made money on my exposure…I can expense these drinks cant I?
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High Med Low
RELIABILITY OF EXPOSURE
No Clue CERTAINTY OF MARKET Damn Sure
Put or Call Forward or Swap Average Rate Option Average e Rate Forward
Don’t Hedge Don’t Trade
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Long-Term Rates Low Long-Term Rates High Cost of Liquidity Low Issue Fixed-Rate Debt, Unwind Swaps to Floating, Issue Longer-Term FRNs* and Swap to Fixed Issue Fixed-Rate Debt and Swap to Floating, Issue Longer-Term FRNs* Cost of Liquidity High Issue Short-Term Debt and Swap to Fixed#, Unwind Swaps to Floating Issue Short-Term Debt, Unwind Swaps to Fixed, Wait to Issue Long-Term Debt
* More difficult to execute due to lack of market depth for long-dated FRNs # More difficult due to accounting complexity of swapping CP/short-term debt to fixed
12 2008 AHA Financial Risk October, 2008
13 2008 AHA Financial Risk October, 2008
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