Identifying and Managing Risk

Identifying and Managing Risk Research Paper example
Undergraduate
Research Paper
Finance & Accounting
Pages 3 (753 words)
Download 0
Identifying and Managing Risk Introduction The subject of financial risk management is concerned with the use of financial instruments in an organization in order to reduce the exposure of the organization to several types of risk. The various types of risks mitigated though financial risk management techniques are market risk, credit risk, foreign currency risk, liquidity risk, inflation risk, etc…

Introduction

The market risk is associated with the uncertainties in the areas of foreign exchange rate fluctuations, fluctuation of interest rates, fluctuation of stock prices and commodity prices. The market risk is managed by the use of interest rate swaps, options and future. The use of derivatives in financial market is important to hedge market risks. The risk management techniques are used to reduce the credit risk of the organization which occurs as a result of default of the counterparties. The credit ratings are used to assess the credit risk of organizations. The credit risk is reduced by limiting the exposure to the parties considered to be risky for repayment (Deventer, Imai and Mesler, 2013). The other credit risk management tools used are by the use of collaterals, periodic marking to the market, captive derivative subsidiaries and netting. Netting is a risk management technique through which the amount of cash owed by one party to another is reduced by the amount by the latter to the former. ...
Download paper
Not exactly what you need?

Related papers

Financial Risk Management
At the business level, managers use VaR as a standard summery of market risk exposure. A benefit of the VaR which is a, the great value theory, is that it may be computed without full information of the return allocation. Semi or fully non-parametric estimation processes are obtainable for downside risk estimation. Additionally, at an adequately low confidence level the VaR calculate explicitly…
The Role of Risk
Essentially a company is indulging into risk management if it is actively analyzing and attempting to quantify the possible losses in a business decision or an investment and then is taking appropriate action to mitigate the possibility of those losses occurring. It is fairly important to manage risk in an investment appraisal process as it helps the organization in protecting itself from all…
Investment Risk Management
Additionally, the company was reported bankrupt on 15th September 2008 and was ranged among the top 22 financial institutions that experienced the world largest bankruptcy (Ross, 2010). This collapse brought a big shock not only to the U.S economy but to entire world. This is because the company provided financial services not only to the affluent individuals and companies but also to the…
risk management
The systemic risk governance requires unity between the countries and enclosure within the process of industry, government, academia and the civil society. Governance is defined as the processes, traditions, actions and institutions by which the authority exercises and takes decision which is then implemented (Aven & Vinnem, 2007). Risk Governance The term risk governance can be defined as the…
Corporate Risk Managemenet
This paper seeks to provide an explanation on how to manage risk in a financial industry. Specifically, this paper provides an explanation on how to manage risks of a banking sector, and this is in regard to the taking of an insurance policy. In the banking sector, Risk management practices focuses on the operational risks, liquidity risks, credit risks, market risk and interest rate risk. This…
Corporate Risk Management
Derivatives Derivatives refer to a method where one party owning a risk transfers the risk to another individual (Malz 189). The party receiving the risk bears the risk but at the same time has the advantage of making a profit is the risk does not materialise. The original owner of the risk does not have to pay anything to the risk buyer but has to forego any benefits derived from the…
corprate risk managment
Risks can be beneficial if properly managed (Merkhofer, 1987). Fate favors the bold; those who dare to dream and take calculated risks. Without risks, there are no rewards. Every decision in an enterprise is based on risks. The decision to manufacture more goods in anticipation of a sales pitch is a risk, so is the decision to stock particular goods. There is no guarantee that there would-be…