Saqib Mehmood; Moli Zhang , pp. 81. MAM/Sektionen för Management, 2010.
From our thesis, we have concluded that any corporation can generate value creation by mitigating and
reducing the impacts of losses associated with financial risks. This can be done by implementing three
steps of measuring, controlling and managing corporate-wide risks with applications of better capital
adequacy regulations of Basel Accord & conventional practices of VaR, insurance, hedging and
derivative in an integrated framework. From theoretical books, journals, we explored the value of using
Basel Accords & Value at Risk (VaR) tool for Financial Risk Management and analyzed its pros and
cons. The Basel Accord provides the guidelines and regulations for all the banks of world for better
capital adequacy. It is apparent that Value at Risk has developed as a successful financial risk
assessment methodology of corporations in the last decade. There are three methodologies in which
Value at Risk can be measured. Danske Bank and Maersk - A.P Moller Group also use VaR for
financial risk management.
Insurance is valuable to corporations in the context of mitigating the impacts of operational risk.
Hedging against various kinds of risks is a common practice in financial institutions. Normally hedging
is exercised in banks with derivatives. Corporate risk management through hedging against risks with
derivatives minimizes the risks and thereby increasing the efficiency and worthiness of banks. Through
our case study to Maersk - A.P Moller Group, we can observe that Hedging and Derivatives are
commonly used to mitigate their interest rate and rate of exchange risks.