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An image showing a barrel of oil, gold and silver bars and metal objects For many companies, the volatility of the price of commodities is an aspect of business they have to deal with every day. However, it is knowing when to invest and when to bide your time that can be the significant difference between making a profit or loss. An approach that is being increasingly adopted amongst organisations now is the establishment of commodity trading risk management functions, which are designed to effectively tackle the opportunities and challenges presented by this side of an operation. Traditionally, commodity risks are managed locally by different firms that focus on the transfer and avoidance of such risk. However, the process is now being centralised towards an enterprise risk management model – with potential synergies and savings to be had by aggregating the risks across all areas of a business. This proactive approach can be extremely beneficial to a company, especially when the commodity (or commodities) in question are core to the performance of the organisation. In order to take advantage of this process, there are several areas that executives need to understand – from determining what the risk strategy should be, to putting trading processes into practice and knowing what is required of them from a compliancy point of view. The importance of commodity prices – and how wildly they can fluctuate – shouldn’t be underestimated. According to a survey carried out by consultancy firm Accenture, more than one in three (35 per cent) of corporate executives told researchers that variations in the cost of commodities can potentially provide the most significant increase of risk to their firms. This proportion is notably higher than factors like liquidity risk and decreased availability of credit – highlighting why this is an issue that shouldn’t be brushed under the carpet. If you’re interested in learning more about this vital element of doing business, then you might want to consider taking a specialist management training course on the matter.

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