Borrowers: Borrowers start to play a strategic game
The privatized French treasurer
ABB seeks exotic knowledge
Because ABB's treasury also does proprietary trading it needs a good risk-management system, says Jan Roxendal, president of ABB Financial Services. But rather than value-at-risk numbers it prefers to look at a "worst-case scenario", Roxendal says. ABB simulates interest rate movements of 1% and exchange rate movements of 2.5% to 5%, depending on the currency, and puts a number on the total risk. Having looked at JP Morgan's RiskMetrics "we found that maybe we're more conservative in calculating risk," says Roxendal. "But when it comes to calculating the return on the risk, RiskMetrics is more accurate."
ABB Financial Services is wary of exotic products, preferring liquid instruments such as fras, futures, plain vanilla swaps and options. It writes options to some extent. "But we have engaged in exotic options," says Roxendal. "It's important to have the knowledge." For example, to hedge foreign exchange exposure during the tender phase of a project, a tailored option can be useful. "We try to make sure the group is protected on each transaction," says Roxendal.