Essay Reduction of the risk of trading: action plan

Faiola (2011) notes that for Portugal, this 10.6 million nation, attempts to transform its economy but faces with the common problem for EU members -economic divergence. The problems of Portugal include lowest productivity rates, and outdated laws and state inefficiencies. Researcher indicates that in order to change its possible economic fate this country should first of all concentrate on the process of altering Portuguese altering society in order for this nation to become more like its northern friend-states form the EU, for instance like Germany. Inman (6 July 2011) indicates that Portugal will not achieve the deficit reduction target ”“ to 3% by 2013 from 9.1% last year as projected in the EU-IMF programme ”“ due to the formidable challenges the country is facing in reducing spending, increasing tax compliance, achieving economic growth and supporting the banking system. The only answer is for the EU richer nations to admit that they made bad decisions when they bought peripheral sovereign debt. It was not a risk-free bet. It turned bad and their assets are only worth 20 or 30 cents in the euro. Spain is often talked about as the next domino but it is known that recently unsatisfying economic figures for Italy and Portugal were announced, and the panic will spread, hurting all of us. (Inman, 2011) As for the Greece, without a doubt this country suffers not only from serious social and political crisis but also it faces unquestionably catastrophic economic conditions. According to the latest data, Greek unemployment index has reached historical record of 18.4% (and it has to be mentioned that 30% of these unemployed are below 30). In addition, unemployment index continues to rise further. It resulted in the increased level of emigration of qualified young people. As for consumption – which is one of the most important economic indexes – it continues to drop and currently it demonstrates a decrease by 40%. The deficit of Greek budget will be 9.5% in 2012 and the GDP decreased by 5.5%. The most horrendous factor is clearly Greek public debt that is compounding now and soon will reach about 200%. Obviously such situation may result in country’s default. The majority of researchers claim that Greece should survive and the government will be able to succeed by keeping this country in the Euro-zone, because its government presented a priorities program and explained the scheme of obligations and expenses, but they claim that this country has a very little margin for error. The structural reforms are required in accordance with the agreements concluded with the EU and the IMF. 3. Reduction of the risk of trading: action plan Without a doubt economic crisis is an extreme situation for any company. Therefore management of the company has to realize that operating in the complex economic conditions that may be described as risky ad uncertain require changes in the decision making process. All decision should be made in the best possible interests of the company. Political and regulatory environment are often been changed in this period therefore it may or may not allow the company to continue its operations on the certain markets. But it has to be mentioned , the companies may received additional room for maneuvering, but it will depend on their ability to adopt the financial innovations. The following elements have to be taken into account when the task is to reduce risk effectively: risk assessment, risk transfer and risk mitigation. The identification of risks has to be made in order to establish risk exposures. Then risk is transferred with the help of securitization, insurance-linked securities, and insurance-linked financial instrument. The final step is the risk mitigation that means cooperation or the involvement of the government or public sector, because government manages financial and economic risks. One of the best action plans that includes immediate practical steps for organization that aims to reduce the risk of trading and other risks related to the crisis was suggested by KPMG in their report dated 2011. This report notes customers, operations, and supply chains experience substantial negative influence of the crisis, but there has been far less attention paid to them. This plan includes two elements: immediate defensive actions and immediate trading response. (KPMG report, 2011) The strategies that may reduce the risk of trading under condition of crisis include: continuity and contingency planning, group-wide consequences, advantage from operating in a fundamentally different environment. (KPMG report, 2011)