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Recommended Readings: Finance

 

How Financial Engineering Can Advance Corporate Strategy
by
Peter Tufano | Harvard Business Review, January - February 1996 

Inc Financial engineering - the use of derivatives to manage risk and create customized financial instruments - can advance a company's strategic goals. It is true that when traders speculate and their bets backfire, companies lose millions and executives lose their jobs. Managers who seek to avoid disasters certainly must be cautious. But  that does not imply that financial engineering should not be used by nonfinancial companies to advance core business goals. Many  leading organizations have used financial engineering to solve classic and vexing business problems. These are not narrow finance problems but rather broad strategic problems in marketing, production, human resources, investor relations, and strategic restructuring - for which advanced financial techniques have offered new solutions. This article presents five case studies that illustrate innovative applications of financial engineering and offers managers guidance for determining when such techniques are appropriate.