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Dealing with Financial Risk

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Dealing with Financial Risk

Bloomberg Press,

15 min read
10 take-aways
Text available

What's inside?

Like generals who are fighting the previous battle, most risk managers prepare for last year's crash.

Editorial Rating

8

Qualities

  • Applicable

Recommendation

David Shirreff was one of the first and remains one of the few journalists to tackle the challenging subject of financial risk. In this book, he collects material from articles he published during the 1990s (a period of astonishing innovation in the field), supplemented by interviews with some of the true luminaries in the areas of financial engineering and financial risk management. Shirreff is a lucid writer with a sharp and concise style. He has the rare gift of making the complexities of finance accessible to a general readership. Therefore, getAbstract recommends this book both to financial professionals and to general readers who have an interest in the subject.

Summary

Shocks and Storms

Shortly after the Yom Kippur War of 1973, Arab oil-producing countries, exercising their power as members of the Organization of Petroleum Exporting Countries (OPEC), embargoed oil shipments and sent the price of oil up more than fivefold. Inflation followed in both the U.S. and Great Britain. The rising cost of oil drove price increases for many other products and services. Moreover, the oil producers' enormous bank deposits had serious consequences throughout the developing world, as banks were able to make loans that they might not otherwise have made. In fact, it was difficult for banks to find sound business uses for the funds - so they found unsound ones. Operating on the principle that countries do not actually go bankrupt, they lent the money to countries that were not really very creditworthy, mostly in Latin America and Eastern Europe.

During the early 1980s, the U.S. and Great Britain tried to stop the inflationary spiral. They raised interest rates to previously unimaginable levels. Interest rates on the dollar hit 22%. This created a problem for the developing-country debtors. High interest rates meant a greater demand - and thus a higher...

About the Author

David Shirreff is the Frankfurt correspondent of The Economist covering business and finance. Previously, he was the capital markets editor of The Economist in London. He has also written for Euromoney, and he co-founded Risk magazine in 1987.

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