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International Financial Management: Bhp Essay

1862 words - 8 pages

International Financial ManagementIntroductionThe management of a business organization is mandated with the responsibility of ensuring that the business organization adopts the necessary management practices in order to achieve increased performance. In the cause of business activities, business organizations come across different risks including financial risks. The financial risks in a business organization are those risks that are likely to affect and reduce the financial stability of a business organization. This means that the business organization experiences losses due to poor management of the financial risks. According to Belmont (2012), to minimize ...view middle of the document...

This policy ensures that the business organization is able to secure the company's financial security and ensure flexibility in finance management. Under the policy, different tools are adopted in managing financial risks in the business organization. For example, the natural hedges that have been created from the diversification of different operations in the business organization are considered as the most effective tool in mitigating risk in the business organization. This tool ensures that the BJHP Company is able to reduce the residual risks that are likely to be involved in the business organization, risks that are expected to be very low (BHP Billiton 17). The BHP Company also considered the integration of financial risks management in the whole organization point of view and does not focus on risks that affect different business units in the firm. Hence, under the risk mitigation tool, the company has adopted the cash flow at risk framework, which takes into account diversification effects. In most cases, the cash flow at risk is among the most expected loss in a business organization which is relative to the projected business plan cash flows. Hence, the business organization is able to hedge all the non-US dollar currency exposures and major capital expenditures and marketing the contracts and project in the non-US dollars. This approach is appropriate in the situation where a company engages in major operations such as acquisitions in which the company has to mitigate its risks. In such situation, the BHP Company adopts the hedge transaction as an execution strategy in order to ensure that the risks parameters are reduced to acceptable levels (BHP Billiton 150).In addition to risk mitigation tools, the BHP Company also recognized the financial structure of the form as a basic tool in managing financial risks in the business organization. In this approach the business organization, ensure that all the opportunistic transactions are entered in such a way that they are able to capture the perceived market risks and market value. However, these transactions are treated separately from those that are under the risk mitigation approach in financial risk management. In addition, the gains and losses in the business organization are entered in the business reporting of financial statements. Hence, the business organization ensures that it passes the different risks to the financiers of business projects. This means that the business organization is using the structured non-financing resource financing in managing risks in the firm. In addition, the BHP Company uses both the direct and indirect cost of risk reduction in order to manage the different financial risks of a business organization. Moreover, the operation and structure of the business organization has been restructuring making the organization operate in a coordinated manner.On the other hand, Rio Tinto uses various tools in managing the financial risks in the business organization....

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