Financial Risk Management Report: Coronavirus Impact and Analysis

This report analyzes the financial risk management strategies employed by the Trafigura Group Pte Ltd in response to the coronavirus crisis. It outlines key steps in the Enterprise Risk Management process, addressing initial concerns, designing for response, and revisiting supply chain design. The report examines the financial risks faced by the company in both trading and logistics, particularly concerning the impact on the company's value due to market decline and financial losses. It also explores the implications of the coronavirus on the company's supply chain, market concentration, and risk parameters. Furthermore, the report discusses measures taken by financial institutions to manage credit risk during the crisis, including assessing third-party resilience and implementing cross-industry responses. The report highlights the significance of the New York Department of Financial Services' initiatives in mitigating risks associated with the pandemic.

Running head: FINANCIAL RISK MANAGEMENT
Financial Risk Management
Name of the Student
Name of the University
Author Note

1FINANCIAL RISK MANAGEMENT
Table of Contents
Answer to Question (a)..............................................................................................................2
Answer to Question (b)..............................................................................................................3
Answer to Question (c)..............................................................................................................4
Answer to Question (d)..............................................................................................................5
References..................................................................................................................................7

2FINANCIAL RISK MANAGEMENT
Answer to Question (a)
The company Trafigura Group Pte Ltd outlines some Key Steps includes in the
Enterprise Risk Management process due to the recent crisis of coronavirus, which is
affecting the company financially and non-financially.
 Initial Steps
Start with the Personnel as the welfare of the people is a crucial resource that the
company has to keep as its main concern. Without the personnel, the company cannot be able
to perform its functions. The second concern is about Maintaining a Healthy Skepticism in
the early stage of such disasters as accurate data is a rare thing to get. Impact records can be
an option, but maintaining contact with the local people can give a reliable source of data.
The company must Run Outage Scenarios for the unforeseen impacts to assess its
possibilities. China has mostly affected due to the crisis of coronavirus, so predictably be
unexpected consequences (Wang, Zhang and He 2020). The level of inventory is not high
enough that will cover short-term outages so the company can expect to cause extensive trails
on common core components and materials. Create a Detailed Operation Center (EOC) that
should be existing at the plant level with some plan of actions for proper communication and
coordination, designated roles for members, protocols to communicate, and make decisions
with including customers and suppliers.
 Designing for Response
The coronavirus impact is to be dealt sensibly with the disruptions of a large-scale
supply chain. The company should initiate to Know all its Suppliers by mapping its suppliers
so that to avoid losing available capacity (Sanchis, Canetta and Poler 2020). Develop a
relationship early with a significant resource. Create a Continuity Plan for the Business that

3FINANCIAL RISK MANAGEMENT
identifies possibilities in critical areas consisting of a backup plan such as for the people,
communication, and transportation.
 Revisit the Supply Chain Design
It has to redesign with Second Sources as it gives a backup capacity for supply,
production, and distribution outages (Sheffi 2018). Even if it designs lower risk levels, it
incurs higher quality, monitoring, and unit cost as well as varies economies of scale.
Answer to Question (b)
Trafigura Group Pte Ltd sources, stores, transports, and delivers a range of
commodities consists of oil and petroleum, iron ore, non-ferrous metal, coal, and
concentrates. The group is also involved in dealing in the non-US currencies that include
procurement and sales of commodities, subsidiary dividends, investments in the non-US
operations, and so on. Due to the crisis of coronavirus, the company has to face a severe
financial loss in both ways through the market as of trading business and supply chain as of
logistics.
 Financial Risk as with Logistics
Trafigura's main client is used to be China, and the effects of imports to China have
directly affected the exports across the world. China is considered the largest net importer of
crude oil that drops a large percentage of global demand. The company is facing immediate
financial effect with the oil, Petroleum, and metals as it exports to China heavily (Maijama et
al. 2020). The International Energy Association has also quoted the lowest oil demand in
January 2020. The metal markets also come under pressure as copper, iron ore has a huge
declining demand in China, and this still to be continue.

4FINANCIAL RISK MANAGEMENT
 Financial Risk as with Trading
The market demand of China has continually declined, and the government has seized
to conduct any exchange that lowers the market demand and the price. The company mostly
deals with the non-US operation and economy, which ultimately dabbed it financially. The
company had faced losses due to the investment involved within its trading business (Avittey
et al. 2020). The trader has to face a massive loss in the chemical sector, textile, and apparel,
automotive sector, metal and its products, electronics and machinery. Thus, the Non-US
economy is declining repetitively, which is also affecting financially to Trafigura with no
control over this.
 Risk’s Implication on the Company’s Value
The Trafigura group, as a logistics and trading business, is facing a significant impact
on the coronavirus crisis. It signifies that the company suffers from a decline in the market
demand and substantial financial loss that is ultimately devaluing the company’s earnings,
stability, and financial position. Oil for instance, will be adverse implications due to oil prices
that stay lower than expected until Q3 (Lop and Tsang, 2020). The steep drops in customer
demand will possibly mean delayed demand. This has implications for the Trafigura Group
and several other companies and their suppliers that operate on thin working-capital margins.
Answer to Question (c)
Noval Coronavirus is global news since in the last few days. Its spread within China is
not only hampering the economy of the country but also affecting the supply chains of
several companies across the world. Disruption has even happened to the Trafigura Group Pte
Ltd, that is one of the largest commodities trading and logistics group at a global level. As the
company tends to perform functions of sourcing and delivering commodities from one place

5FINANCIAL RISK MANAGEMENT
or customer to another through using its worldwide network and infrastructure, so it has an
impact upon its supply chain that includes materials, labor, sourcing, logistics, and
consumers. Secondly, it also deals as a trading group so the impact on the risk parameters of
the company will be with both aspects.
The market concentration seems to be under pressure, high volatility, and uncertainty.
The primary risk is with its supply, which has a high impact on the risk parameters of the
Trafigura Group. The company is highly dependent on its logistics business, where the major
market that they used to supply was China. The decline of oil demand in China is
continuously hitting the profit of the company (Khan and Faisal 2020). The other regions are
also taking the concern to cope up with this crisis, and for this, the government slows down
the commodity supplied. This ultimately hampered the logistic system and affected
transportation at a very high level. As an impact of this, the share market is also rapidly
declining as the business is making only limited earnings.
Logistics services tend to give sectoral connections in the local economy and connect
the local economy with international economics. Thus, considering the market concentration
of Trafigura Group with the origin of Coronavirus crisis, the performance of the company
and the potential parameters of its risk has a significant impact on the profits and the
performance of the international trade.
Answer to Question (d)
The Coronavirus (Covid-19) continues to spread and its impact can be felt at a global
level, which is affecting daily life as well as the financial markets. Financial institutions have
taken different measures to manage credit risk due to the Coronavirus crisis.
 Assessing the Resilience of Third Parties

6FINANCIAL RISK MANAGEMENT
Banks and other financial service institutions have a large number of third parties as
vendors, partners, creditors, and so on. The procurement and credit risk management team of
such institutions tends to carry out ongoing monitoring on their third parties consisting of
information security and business continuity (Greene et al. 2019). The firms move to the
vendor population and determine that critical zones operate in affected regions or the area
that has the possibility to get an impact. This outreach is frequently supported by
a questionnaire allowing the vendor firm to share details.
 Cross-Industry Response
Financial services firms have imitated to the Significant Even Notification and
Tracking (SENT) system. The SENT committee consists of regional and global financial
services institutions that decide to issue a new event along with a set of questions to help with
coordinating a cross-industry response. SENT is a part of Know Your Third Party (KY3P)
risk management (Peters et al. 2020). The distributed method to measuring vendor resilience
in the past, all communications protected and audited on the platform and vendors can share
their questionnaire responses efficiently with attaching any corporate statement they have on
the subject.
 NYDFS Initiative
The New York Department of Financial Services has published corona virus-related
guidance to its classified staff. The organization measures due to coronavirus crisis include of
the plan of re-assessing risk, reviewing of service level agreements, reviewing vendor web
application security policy, and procedures, understanding vendor data encryption policies
and procedures, and re-evaluating continuous vendor risk mentoring strategy (Fung, Lau and
Woo 2020). The organisation attempts to mitigate the risk in these steps including several
necessary points. Review level includes monitoring of all connected devices, the necessary

7FINANCIAL RISK MANAGEMENT
level of authentication to access networks, constant network monitoring, application security
and remote employee work policy.
References
Ayittey, F.K., Ayittey, M.K., Chiwero, N.B., Kamasah, J.S. and Dzuvor, C., 2020. Economic
impacts of Wuhan 2019‐nCoV on China and the world. Journal of Medical Virology.
Fung, J., Lau, S.K. and Woo, P.C., 2020. Antigen Capture Enzyme-Linked Immunosorbent
Assay for Detecting Middle East Respiratory Syndrome Coronavirus in Humans. In MERS
Coronavirus (pp. 89-97). Humana, New York, NY.
Greene, C.J., Burleson, S.L., Crosby, J.C., Heimann, M.A. and Pigott, D.C., Coronavirus
disease 2019: International public health considerations. Journal of the American College of
Emergency Physicians Open.
Khan, N. and Faisal, S., 2020. Epidemiology of Corona Virus in the World and Its Effects on
the China Economy. Available at SSRN 3548292.
Luo, S. and Tsang, K.P., 2020. How Much of China and World GDP Has The Coronavirus
Reduced?. Available at SSRN 3543760.
Maijama’a, R., Musa, K.S., Garba, A. and Baba, U.M., 2020. Corona Virus Outbreak and the
Global Energy Demand: A Case of People’s Republic of China. American Journal of
Environmental and Resource Economics, 5(1), pp.10-13.
Peters, A., Vetter, P., Guitart, C., Lotfinejad, N. and Pittet, D., 2020. Understanding the
emerging coronavirus: what it means for health security and infection prevention. Journal of
Hospital Infection.
Sanchis, R., Canetta, L. and Poler, R., 2020. A Conceptual Reference Framework for
Enterprise Resilience Enhancement. Sustainability, 12(4), p.1464.

8FINANCIAL RISK MANAGEMENT
Sheffi, Y., 2018. Modeling Risks in Supply Chains. In Finance and Risk Management for
International Logistics and the Supply Chain (pp. 55-84). Elsevier.
Wang, X., Zhang, X. and He, J., 2020. Challenges to the system of reserve medical supplies
for public health emergencies: reflections on the outbreak of the severe acute respiratory
syndrome coronavirus 2 (SARS-CoV-2) epidemic in China. BioScience Trends.