Paper Topic:

Managing Financial Risks with Derivatives: The case of the UK Clothing Retail Industry

MANAGING FINANCIAL RISKS WITH DERIVATIVES (THE CASE OF THE UK CLOTHING RETAIL INDUSTRY

UK RETAILER MARKS AND SPENCER

INDEX

S .NO . PAGE NO

1 . DERIVATIVES 3

2 . ADVANTAGES OF DERIVATIVES 3

3 . DISADVANTES OF DERIVATIVES 4

4 . HOW TO MINIMISE THE RISKS WITH DERIVATIVES ? 4

5 . TYPES OF DERIVATIVES 5

6 . USE OF DERIVATIVES 5

7 FINANCIAL DERIVATIVES 7

8 . HEDGING 7

9 . RISKS ASSOCIATED WITH DERIVATIVES 7

10 . RISK MANAGEMENT GUIDELINES 9

11 . RISK MANAGEMENT PROCESS 11

12 . RISK MANAGEMENT THROUGH DERIVATIVES 32 p

13 . CREDIT DERIVATIVES 34

14 . HOW THE CREDIT DERIVATIVES WORK ? 34

15 . DERIVATIVE TRADING ENVIRONMENT 36

16 . MARKS SPENCER GROUP - INTERNAL 38

17 . MARKS SPENCER GROUP - EXTERNAL 39

18 . INVESTIGATION 40

19 . MARKS SPENCER ETHICAL FUND 40

20 . MARKS AND SPENCER FINANCIAL SERVICES PLC . 45 DERIVATIVES

Derivatives are one type of securities . The derivatives used to hedge the risks . The primary reasons for use of derivatives are to manage interest rate and currency risk . The use of derivatives is accompanied by significant control mechanisms inside companies . Derivatives used to reduce financing costs and to increase the yield of certain assets . The derivatives activities are becoming a direct source of revenue through market-making functions and used to risk arbitrage . Derivative transaction is a transaction whose value depends on the value of an underlying asset

The derivatives markets are the financial markets . The market can be divided into two . Exchange traded derivatives and over the counter derivatives . In to overcome financial mismanagement , the derivative used as hedging instrument . There were some misconceptions that derivatives caused to down fall of companies . But it is not true The derivatives themselves are not damaging . But the misuse of derivatives cause troubles for businesses . Derivatives are financial arrangements for which the company earns profits based on the functioning of assets . If derivatives are used , it will be best counter for company 's economic problems . Derivatives are used as tool of risk management so that transfer of risk from the derivatives providers . The Derivatives providers may be banks , securities firms , etc

ADVANTAGES OF DERIVATIVES

Flexibility

Derivatives can be used with respect to commodity price , interest and exchange rates and equity price . It can be used in many ways

Risk reduction

Derivatives can protect the business from the losses . Derivatives allow cutting down on non-essential risks

Stable economy

Derivatives will have stability on the economy by reducing the number of businesses , which will go under due to volatile market forces

DISADVANTES OF DERIVATIVES

Credit risk

When the derivatives cut down on the risks caused by a fluctuating market , they increase credit risk . Even after minimizing the credit risk through collateral , it is possible still risk from credit protection agencies

Crimes

Derivatives have a high potential for misuse . If the misuse continued the downfall of many companies

Interest Rates

The wrong forecasts can result in losses amounting huge losses for large companies . In case of small businesses , the business may go out . Hence forecast of the long term and short-term interest rates

HOW...

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