Essays on Financial Risk Management Assignment

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Report on GFML’s Investment StrategyIntroductionGlobal Fund Management Limited is an Australian investment firm that majorly deals in debt and equity in Australia as well as other international markets. This company handles financial perils by coming into derivative agreements based on the management decisions. Regarding the equities, there is perceived volatility in the world equity markets as seen from the conflicting views arising from the Republic of china. Schönborn (2010), states that, this is attributed to the irregular nature of the outcome of the portfolio owing to the existence of debt predicaments in the Europe and USA.

The essence of analysis of European and the USA markets is because they greatly impact the investment of GFML securities. The Australian dollar has continually been overvalued against the US dollar and other hard currencies. This in effect has led to the existence of duo speed economy. The falling of goods prices greatly affects the market expectations owing to the interest bearing securities (Chan and Wong 2009). The investors think that the effect of this would be a reduction in the interest fee and therefore they are not likely to invest.

On the other hand, the US Federal Reserve keeps the interest at a low price and this stirs up the economy. This creates an anticipation of the rise of the interest price in the upcoming time (Yasmin 2007). The Australian dollar is projected to go up in value over a short duration of time. A decrease of the goods prices is also estimated to lower the A$. The persistent demand for the currency in the central banks worldwide has made the currency stronger in a span of a few years.

Moreover, the cost of gold as well has an impact on the asset security. In recent times, the price of Gold has gone down against the US dollar and many investors in Australia are purchasing gold as an asset security. In a decision to hold the investment in Gold, GFML must consider the Chinese and US markets plus the investor’s decisions to opt for volatile assets like equities (Malz 2011). Problem StatementThe various financial risk exposures that GFML face with respect to the asset categories include hedging risk, market risk, credit risk and operational risk.

Hedging risk occurs as a result of the existence of the difference of prices in the portfolio market. This risk occurs as a result of the difference in the prices of shares in Hong Kong, gold prices and small period interests bearing securities (Miller 2012). Market risk occurs as a result of varying market situations of the portfolios. These consist of the market price risk with regard to exchange price, interest prices along with further market charges.

This is mainly seen from the value of assets in addition to liabilities and liquidity threat. This risk occurs when some assets are unable to be liquidated in a timely manner devoid of attracting a market discount difference. Credit risk occurs due to altering credit circumstances in the portfolios market. The credit risk likely to be experienced in the Australian market includes default risk which is the risk of likelihood of changing impact of the asset or portfolio value. It also integrates the capacity to access collateral (Coleman 2012). Operational risk faced by GFML include the human factors, errors fraud, infrastructure and system failures, calamities, risks associated with operating organizations on the portfolio and risk process (Van Deventer, Imai and Mesle 2011).

So the company has to incur some operating risk emanating from the firm’s hierarchical arrangement and the nature of the portfolios.

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