BE-416 Management of Macroeconomic Risks and Opportunities (Autumn 2020)

• the macroeconomic environment of the firm impacts performance via different channels
• to measure the impact of macroeconomic fluctuations on performance using the MUST analysis
• to filter out macroeconomic performance from intrinsic performance
• to develop consistent and comprehensive strategies for macroeconomic risk management
• to provide informative reports to external stakeholders on the macroeconomic impact on the firm
• to evaluate relative performance of subsidiaries considering the role of macroeconomic fluctuations
• to evaluate performance for purposes of designing executive incentive schemes considering the role of macroeconomic fluctuations
• to evaluate performance for purposes of corporate restructuring considering the role of the macroeconomic environment of the firm

This course presents a comprehensive approach for corporate decision-making with macroeconomic uncertainty. Based on the short-comings of traditional approaches the course will focus on the advantages of the Macroeconomic Uncertainty Strategy (MUST) - analysis. The approach remedies the short-comings of the traditional methods by recognizing the interdependence between macroeconomic variables (exchange rates, interest rates and inflation) and the need for a multivariate model framework. The approach also handles the criticism of traditional methods by being dynamic and by avoiding the partiality of the traditional methods.

The course will start by identifying the macroeconomic environment of the firm and by discussing the role of financial and economic integration for the transmission of macroeconomic fluctuations from one country to another. After having studied patterns of historical macroeconomic fluctuation it will be discussed why so little attention is currently given to the impact of these fluctuations on corporate performance. Traditional measures of the macroeconomic exposure and of the macroeconomic impact on the firm are briefly discussed and their shortcomings highlighted. The course then sets out to discuss the different elements of the MUST-analysis and its three pillars ¿ the fundamental analysis, estimation of sensitivity coefficients and development of a strategy. The importance of finding the sustainable performance in different context by filtering out temporary macroeconomic performance is then highlighted and discussed. A take-home assignment on the filtering of performance is handed out. Finally, ways of evaluating the use of the MUST-approach is discussed.