CIMA Official Learning System P3 — Performance Strategy （11）Introduction to Risk Management and Derivatives

L EARNING O UTCOMES
After completing this chapter you should be able to
? appreciate the purpose and functions of a treasury department;
? identify and evaluate reasons for corporate hedging;
? explain the various steps in the fi nancial risk management process;
? identify and explain basic derivatives and their uses.
1 1 .1 Introduction
The main purpose of this chapter is to introduce students to derivatives and fi nancial risk
management. It lays the groundwork for the subsequent chapters where we apply the con-
cepts introduced in this chapter. We begin by giving a brief background to recent develop-
ments in fi nancial markets that have resulted in the need for fi nancial risk management.
Then, we describe the functions of the corporate treasurer and discuss arguments in favour
of and against corporate hedging activities. We also provide a brief overview of derivatives
and outline different ways in which derivative instruments can be used. The chapter con-
cludes with a brief summary.