Hence the firms in the financial services industry attach more importance to the risk management in their organizations. Risk management in the financial services organizations is necessitated due to various reasons. The most important reason is the potential economic losses to which the firms will be exposed in case they had to meet with some unforeseen risk and it may erode the entire capital of the firm. There are other reasons for undertaking risk management in these firms like the tax implications of the transactions, movement in the capital and stock markets and the persistent fear of the people managing the financial services businesses that their decisions may be proved wrong by the course of business events. In any risk being faced by the financial service firm there is the potential danger of the firm losing profits which in turn would result in the decline of the firm value for some of the stakeholders. Similarly all or any of these reasons for managing the risk may force the management of the firm to make an assessment of the risks involved and take necessary corrective or preventive action to protect the firm against the risks identified. In this article the different kinds of risks to which the financial institutions are exposed and the ways in which the firms can protect them against these risks are discussed.
The financial ...Show more