CHAPTER 6

Does Risk Management Add Value?

In the 1990s, as derivatives started to come to the fore as a risk management tool, many companies started to think of risk management as a profit center—or at least think of their financial risk management activities as having the potential for profit generation. In fact, I can think of one company that regularly put forward guidance in their earnings projections the profit they expected to generate from their hedging activities. While most companies were not that bold, nor as brazen in their expectations for profits from hedging activities, there were several surveys conducted asking companies whether they viewed risk management as a profit-generating activity or as a cost center. Then, the hedging ...

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