Ebook indd

© 1st Forex Trading Academy 2004
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How to read and interpret a weekly economic calendar
Unemployment rate
- Percentage of employable people actively seeking work, out of the total 
number of employable people determined in a monthly survey by the Bureau of Labor Statistics. 
An unemployment rate of about 4% - 6% is considered “healthy”. Lower rates are seen as inflatio-
nary due to the upward pressure on salaries; higher rates threaten a decrease in consumer spen-
ding.

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© 1st Forex Trading Academy 2004
35
How to manage your risk
How to manage your risk
Risk Management
Once you have the facts it is decision time. You can choose to do nothing or seek to reduce the 
exposures or to hedge them in whole or in part. 
The unforgivable sins are to fail to consider the 
risks or fail to act on any decisions.
The risk culture of your business is critical and must be established at the most senior level. Above 
all it calls for honesty. Too often individuals are criticized for decisions that, at the time, were in 
tune with the organization’s perceived appetite for risk. But it is never easy to set down effective 
guidelines and the range of exposures for even a simple transaction can be extensive.
For example, an exporter needing to borrow to finance a sale in foreign currency may have to 
consider counterparty credit risk, funding risk and interest rate risk. The permutations are endless 
and the costs of hedging transactions to reduce or eliminate every possible exposure could 
potentially swallow any profit from a deal.
While losses are likely to be quantitative, the potentially infinite number of risk combinations 
means that the skills needed to make good decisions are usually qualitative. Even a computer 
programmed to consider every conceivable permutation of risks needs to be told what level of 
exposure is acceptable. Any program is only as good as the parameters and data fed into it by 
people who have themselves been conditioned by experience.
But what of the improbable, the wholly unexpected or the never-seen-before? 
Effective risk management requires thinking the unthinkable. 
This does not in any way lessen 
the great value of the many sophisticated risk-management systems available. The problems come 
if people start to think of them, and the models they are based on, as infallible.
It is also common for the development of control systems to come after any new risk-related 
products. Be careful not to bet the business until the exposure is known. To be in business you must 
make decisions involving risk. However sophisticated the tools at your disposal you can never hope 
to provide for every contingency. But unpleasant surprises should be kept to a minimum.
Ask yourself…
1- 
Can the risks to your business be identified
, what forms do they take and are they clearly 
understood - particularly if you have a portfolio of activities?
2 - 
Do you grade the risks faced
by your business in a structured way?
3 - 
Do you know the maximum potential
liability of each exposure?
4 - 
Are decisions made on the basis
of reliable and timely information?

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© 1st Forex Trading Academy 2004
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How to manage your risk
5 - 
Are the risks large in relation to the turnover of your business
and what impact could they have 
on your profits and balance sheet?
6 - 
Over what time periods
do the risks exist?
7 - Are the exposures 
one-off or are they recurring?
8 - 
Do you know enough about the ways
in which you exposures can be reduced or hedged and 
what it would cost including the 
potential loss of any upside profit?
9 - Have trading and risk-management functions 
or decisions been adequately separated?