Our successful experience in trading a wide variety of raw materials has enabled us to establish an efficient risk management policy. We monitor on a daily basis the risks associated with this business and our risk committee defines risk limits that Goldman Commodities Inv. can take. We identify, we quantify and mitigate the risks constantly and during each transaction.
Our professionals manage and monitor the following risks:
Commodity and currency price risk:
The price of the raw material we trade can be very volatile due to geopolitical factors, meteorological and quality changes, etc. We are also confronted to currency risk because our base currency is the US dollar and we pay our suppliers often with the currency of the country of origin of the goods. In the other side, we can be paid by clients in different currency then our base currency. The foreign exchange can be as volatile as the stocks and often surprise the markets; the currency rates are moving by macroeconomics reasons and sometimes by surprising decisions taken by central banks.
Our risk managers cover these fluctuations totally or partially through financial instruments such as futures, options contracts, and forward contracts and with other alternatives that can be applied to very specific markets and products.
Credit and country risk:
This risk is the simple fact that a supplier or end customer will default in its contractual commitment. Furthermore in the context of international trade our company can face political, economic, financial and legal risks of the country where this counterparty is based. The quality of our business relationships with our counterparties is reviewed continuously.
We automatically and systematically cover this kind of risk by transferring and using the instruments offered by insurance companies or banks; these are for example documentary credits, Stand-By Letter of Credit and bank guaranty.