Global Firms' Financial Execs Say They Lack the Right Tools To Measure

Financial executives at multinational corporations admit they are ill- equipped to measure the risk of derivatives transactions, according to a survey conducted by Emcor Risk Management Consulting.

Despite the importance of risk management, nearly two-thirds of the 80 financial executives of multinational companies that responded to the Emcor survey said they had neither the understanding, the expertise, nor the systems to make value-at-risk measurements.

Value-at-risk is a worst-case estimate of how much a company is likely to lose over a period of time on its derivatives contracts. The measure is designed to show a firm or end user how much money they have exposed at any given time.

"Our survey shows that there is a great deal of uncertainty among corporations as to how best to apply these concepts and link technology with this valuable market-risk measure," said Robert Baldoni, managing director of Emcor Risk Management Consulting.

In the survey, the executives indicated the treasury department of their companies are able to devote just 13% of their time to identifying exposures and developing risk-management strategies. By comparison, the departments devote more than 50% of their time on cash management, funding and investing, and pension management activities.

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The Chicago Board of Trade's currency-trading affiliate is seeking approval for a new Mexican-peso futures contract designed to help companies with risk exposures in Latin America.

The MidAmerica Commodity Exchange said it made a formal application to the Commodity Futures Trading Commission on Nov. 29 to trade the contract, which would be the exchange's first developing-nation currency contract.

Under proposed terms, each contract would equal 250,000 new Mexican pesos. The price quotes would be expressed in U.S. dollars per peso. One tick in price would equal a $6.25 change in the value of each contract. Proposed settlement dates are in March, June, September and December.

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While futures exchanges continue to expand their product offerings, overall trading volume in the Chicago Mercantile Exchange's financial futures and options contracts continued to slide in November.

The 181.4 million financial futures and options contracts traded in November declined 4.2% from October and plunged 31.4% from a year earlier. The declines were spread evenly across both futures and options contracts.

Despite the overall declines, the exchange reported significant gains in four equity options contracts during the month. Options on the S&P 500, S&P Midcap 400, Russell 2000 and Nikkei 225 indexes all showed gains of 30% or more from year-earlier results.

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