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Businesses can prepare for risks that cannot be quantified ahead of time by maintaining a healthy cash balance. Cash balance acts as a buffer against unpredictable events, such as a pandemic. It is considered the best hedge against any risk that cannot be identified or quantified in advance. For instance, a company like Apple maintains a $200 billion pile of cash, making it resistant to unforeseen risks.
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Purnanandam meditates on the question of what can the managers do to control risks that are not even identifiable? "Unlike exchange rates or commodity prices, there are no market-based derivatives contracts that can be used to hedge such a threat," Purnanandam writes. He's answer is cash balance. Cash balance is the best vaccine against unpredictable events such as the pandemic, Purnanandam writes. Moreover, he believes that cash is actually the best hedge against any risk that cannot be identified or quantified ahead of time. So in case of Apple, a $200 billion pile of cash is what makes it resistant to the risk.
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Set expectations and be prepared for different outcomes at all times. Our Risk Management presentation allows you to outline ways to monitor and contr...
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