What are some financial practices that a construction company can take to protect themselves against interest rate risk? Which do you think are the best strategies? Why?
1) WHAT ARE SOME FINANCIAL STRATEGIES THAT A CONSTRUCTION COMPANY CAN TAKE TO PROTECT THEMSELVES AGAINST INTEREST RATE RISK? WHICH DO YOU THINK ARE THE BEST STRATEGIES?WHY?
A)There are some useful financial strategies to protect themselves against interest rate they are
1.Operating risk ; The financial model and assumptions to viability of the project are dependent on the projected costs of operation if there is something in the cost of operation that increases, the lenders will want to be protected themselves to the extend that will impact the revenue stream
2.Environmental risk:These things will mitigate liabilities and constrains on a project.The cost of compliance can be significant and will need to be allocated between the project company and the grantor
3.Currency exchange risk:project finance debt is often sourced from foreign lenders in foreign currencies yet project revenues are generally denominated in local currency where the exchange rate of revenue and the risk mitigation is lower than expected it can be one of the best strategy
4.Interest rate risk :Project finance debt tends to be fixed rate.This helps provide a foreseeable or atleast somewhat stable repayment profile over time to reduce fluctuations in the cost of infrastructure services and the spread of margin be based on basis points
These are the best strategies that a company can pose in order to avoid the interest rate risk!!
What are some financial practices that a construction company can take to protect themselves against interest...
identify some of the financial practices that a construction company can take to protect itself against interest rate risk, in particular. What are examples of recommended practices that construction firms can use to manage the risks associated with interest rate-related risks, and which strategies do you recommend?
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