13 May 2010 prepared by SB Hwang New Normal as we call it 13 May 2010 prepared by SB Hwang

The Risks have been real

The Risks have been real -2

Challenges for Risk Management Higher Risk Premium Larger Credit Spread Higher Liquidity Premium Greater Market Volatility Risk Management plays a critical role in ensuring financial flexibility for any firm’s survival through the economic downturns and crises Managing earnings volatility is more vital than ever before, as stability is greatly valued by investors

Typical Risky Behaviors Not taking into account consideration the potential change in commodity prices when executing the FX portion of a commodity hedge – Understand the Firm’s Underlying Risks Hedging on the back of over-confident projected sales – Hedge with Certainty The worst case MTM of a structure is larger than the company earnings – Know your expected and worst case Not predefining “risky levels” and not taking proactive risk actions when events occur – Set Risk Management Triggers Portfolio of hedges consisting purely of tactical hedges – Core and Tactical Hedges Layering the same exotic structures across the hedging portfolio – Diversify hedging products Hedging activity on a silo basis rather than on a portfolio basis – Centralize hedging activities

Still hedge? Risks have been under-priced: Markets today are pricing in larger risk premiums, making hedging risk outright more expensive Balanced approach to manage cost and risk – Proper application of hedging tools: earnings risk Lowering the cost of hedging without increasing too much risk Investors have a strong preference for stable earnings

Available tools for hedging in Korea Foreign Exchange FX Spot FX Forwards FX Options Interest Rates FRA’s Interest rate swaps Cross currency swaps Interest rate options Bond Futures Commodity