Corporate Governance and Strategic Risk Management

Question 1

What is the Agency Problem and how can it be mitigated?

Answer 1

Agency Problem arises when management does not act in the best interests of shareholders.

Question 2

What different types of risk could a firm face?

Answer 2

• Strategic risk
• Operational risk
• Financial risk
• Compliance/ legal risk
• Environmental/ reputational risk

Question 3

What are some ways in which companies can hedge against interest rate risk?

Answer 3

Can use financial instruments such as swaps, futures, and options to hedge against fluctuations in interest rates that might impact their debt repayments and operational costs.

Question 4

What techniques cam be used to manage foreign currency risk?

Answer 4

Techniques include forward contracts, currency swaps and options. These tools help fix future exchange rates or provide terms that mitigate the effects of currency value fluctuations.

Question 5

What are effective practices for corporate governance to control agency problems?

Answer 5

• Establishing a strong board of directors
• Having a clear division of responsibilities
• Conducting regular audits
• Maintaining transparency with shareholders