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Frequently Asked Questions [FAQ]

Q.: What is collateral management and collateralization?

Collateral management is a centralised service that will handle a variety of collateral-related functions, including the valuation of collateral, confirmation of valuations with counterparties, optimization of collateral and transfer of collateral. Collateral Management as we perceive it is the management and insurance of goods which we have been instructed to look after for our client. Collateralisation is a credit enhancement technique and is a means of mitigating credit risk associated with privately negotiated derivatives transactions. This can be used for either an individual deal or a large portfolio of deals.

Q.: Why would one want to use a collateral management service?

The service reduces financial and physical risks, ensures capital savings, increases competitiveness, improves liquidity, allows access to complex or higher risk trades. Collateral Managers are commonly used by Banks, Funds and Traders to mitigate risk and in compliance to the requirements as indicated in Basel II.

Q.: What is the due diligence in business transactions?

The due diligence varies depending on the task, yet may include financial, legal, labor, tax, environmental and commercial analysis. It may also include site & technical surveys or auditing to ensure that decisions taken are based on actual, factual information.  

Q.: Why is market entry such an apparent issue in Russia and the CIS?

As Russia and the CIS are not members of the EU they implement their own specific rules and regulations, such as the importation of goods, certification, registration, opening a legal entity and employment law. In a number of cases legislation is unclear and/or contradictory, which can lead to problems or future risks if the wrong approach has been adopted.  

Q.: What are the possible issues with the logistics service and supply chain management?

Logistics in Russian and investment therein, has not been good in the past ten years leading to high costs and a relatively poor service. The situation is compounded by the fact that Russia itself is vast [as an example the distance from Moscow to Vladivostok is the same as London to Los Angeles], the climate is harsh and regulation a challenge. Therefore to move and control the flow of goods (demand & supply planning, inventory control, freight forwarding, warehousing) needs considerable planning and constant monitoring to react to situations immediately. You are otherwise left wondering where your goods are and in what condition!

Send us your questions to Email: info@DRUMrisk.com

DRUM Risk Management
150 Fenchurch Street
London
EC3M 6BB

Tel: +44 (0) 20 7929 2473
Email: info@DRUMrisk.com

To date DRUM has analyzed, managed and fully insured in excess of $3.6 Billion, with a Zero Loss Record.

Copyright © 2009 DRUM Risk Management