Business Risk in an Uncertain Global Economy - Essay Example

The primary risks related to the global volatility are the interest rate risk, currency risk, country risk. All the three are related to each other and have a cascading effect over each other (Skipper & Kwon, 2007, pp. 20-23). Interest rate risks are related to the magnitude and probability of the unanticipated changes in the interest rates that exert an influence over the cost of various sources of capital in a specific currency denomination of an economy and others related economies and the demand for the products.

The effects are considered in measuring the exposure of the overall interest rate changes. Currency risk has been related to the magnitude and probability of the uncertain changes taking place in the exchange rate and the inflation rates that is n the value of the foreign and domestic money. On the other hand the country risks refer to the enormity and probability of the changes in the country’s productivity development. Country risks are primarily related to the aggregate demand influencing the scale of production which in turn is affected by the political risk and global economical risks.

The country risk exerts an influence over the business related risk and decision making policies of each business operating within the country premises. A firm competitive risk basically refers to the enormity and probability of the uncertain changes in the business specific conditions in addition to the industry specific and demand condition affected by the interest rate, currency rate and country risks (Oxelheim & Wihlborg, 2008, pp. 20-25). Instances can be derived from the global turbulence situation which Bank of England faced during 2013 and how they dealt with such situation.

As per the governor of the Bank Of England, “Over two years now we have seen the situation in the euro area get worse and the problem being pushed down the road” (BBC News Business, June 2012). From the statement it can be assured that individuals in the business organizations, the firm itself and the government primarily deal with such uncertainties arising out of the volatile economy by executing certain risk management processes. Financial Management Theories, communication and initiatives: Financial management theories are related to the financial risks.

Financial risks generate from the individual’s or the firm’s possession or usage of the financial instruments. The financial risk can evolve through various sources such as interest rates, issuance of stocks, credit extensions, and transaction of foreign currencies and also through various usages of derivatives. So it assures that the business incorporate the defaulter risk within its operations. Any firm when extend the credit to their customers suffers from the financial risk that someone will default.

So as the individual also sustains the financial risk while borrowing money from the business enterprises like bank for fulfillment of their personal needs of like buying house, cars, making investments etc. Financial risks are primarily external towards the business and the individual and therefore are less subjected to the direct control of the same. On the other hand, they involve a careful and specific selection of the financial instruments (Pixley, 2004, pp. 1- 17). The financial management theories related to the financial risks can be divided into financial market risks, operational risks and the strategic risks. The