Free Fundamentals Of Derivatives- Project Report Essay Example

Monitor and evaluation

Objective benchmarks used to monitor risk exposure
Exposure to risks and uncertainties is one of the greatest challenges faced by businesses in the prevailing business environment. Different industries have varying levels of exposure to risks. Auto parts manufacturers are among the first rated sectors in terms of risk exposure. Magna, the most diversified automotive supplier globally is exposed to numerous risks related to corporate clients and marketing conditions. The key price risks faced by Magna include the following. Firstly, the company profitability is affected by costs related to closing or downsizing of European operations. The above process affects the profitability of the company. Secondly, fines and penalties imposed competition regulatory authorities introduce significant risks likely to affect the profitability of the company. Magna also suffers from risks associated with the ability to offset price concessions from existing clients because of increasing prices of automobile products. Currency exchange rates are another key price risk faced by Magna Automobile Supplies when dealing with clients with different currencies (Magna International Inc. 33-34).
The primary benchmarks used to monitor risk exposure in the company are proper policies, sufficient infrastructure, and excellent marketing and offering methodologies. An effective risk management plan requires adequate infrastructure. Magna Automobile Suppliers infrastructure composes of human resources, hardware, data, and operations. Human resources play a role in orienting employees to potential clients in order to understand their trading objectives and constraints. Data ensure reliability, secured integrity, and accuracy of client’s information.

Risk management policies and strategies

The policies developed by Magna should fulfill the expectations of clients and ensure risk-free business operations. The policy should involve all company stakeholders such as employees, management, clients and customers, government, and members of the public. Additionally, the policy should focus on core business strategies, define risk tolerance, give responsibilities to relevant authorities, and determine the risk control implementation plan. On the other hand, the policy implementers will have to undergo training and monitoring program to familiarize with the risks and learn different mitigation measures.

Clients’ objectives & constraints

All risk monitoring and evaluation activities should consider clients’ objectives and constraints. Clients and customers form an important aspect of the overall running of the business, and their environment should be highly considered when developing risk management policies. One of the main objectives of Magna Auto Suppliers is to become recognized by clients all over the world as an industry leader in product, process, and material innovation (Magna International Inc. 8). In order to compatibility of clients’ objectives and constraints to company’s risk monitoring and evaluation policies, Magna will seek consultation services. Extensive interviews and surveys will be conducted to clients to determine the main areas that pose greater risks. Additionally, Magna will make use of risk management model that highlights all the processes. These processes are assessment, design, implementation, and evaluation. Figure 1 shows a model that Magna should use to monitor, evaluate and implement risks to meet clients’ objectives and avoid major constraints.
Figure 1: Proposed risk assessment model for Magna

Market conditions

An effective risk monitoring and evaluation program should consider market needs of the company and expectations of customers. The most common market risks experienced by Magna include unethical acts practiced by employees or clients such as bribery, market rigging, and corruption. The proposed policies will ensure any person found guilty of market frauds faces severe consequences. The company will set an independent risk management function whose main roles are to ensure compliance with procedures and policies. Additionally, the risk management function will conduct an independent valuation and risk management and monitoring programs on a quarterly basis to ensure total compliance with company rules and regulations.

Works Cited

Magna International Inc. Annual Information Form. March 26, 2014. Web February 27, 2015
http://www.magna.com/docs/default-source/ar-2013/aif-final.pdf?sfvrsn=2