Financial Risk Management

Financial Risk Management

Risk Management

Risk management is a kind of management for controlling or minimizing the involvement of risk. Risk management is the process to identify, assess and prioritized the risks, that how uncertainty affects on your objectives and goals and how a firm can monitor, minimize and control these probabilities of events (Christoffersen, 2011). There are a number of risks that involve in a business, and every market or business has risk in order to tackle with them an effective manager is required. Following are some of the issues of risk management:

Operational Risk

Systemic Risk

Capital Charges

Corporate Governance

Economic Risk

Financial Risk

Financial Risks

In any economic activity there is always a risk of financial loss arising from the specificity of certain business transactions. The risk of such losses are financial risks.Financial risk is the probability of adverse financial consequences in the form of loss of income and capital in uncertainty conditions for its financial performance (Schutt, 2007). Under the financial risk the company is under the probability of adverse financial consequences in the form of loss of income and capital in uncertainty conditions for its financial performance. The financial risk is closely related to the economic risk because the types of assets that a company owns and the products or services offered play an important role in servicing its debt. This classification feature of financial risks is a key parameter for differentiation in the management process. Specific variety of financial risks in the classification of the system is present most widely (Handlechner, 2008). Some of the most common and major risks encountering the business are;

Risk of Insolvency

This risk is generated by a reduction in the liquidity of current assets generating an imbalance of positive and negative cash flows of the company over time. According to its financial impact, this type of risk is also among the most dangerous risks (Das, 2005).

Risk of Financial Stability

This risk is generated by the imperfection of capital structure (excessive debt used with heavy interest costs) generating an imbalance of positive and negative cash flows of the company by volume. The nature of the risk and the forms of its manifestation are considered in the presentation of the financial leverage (Malz, 2011). This type of risk has played a leading role as part of the financial risk since it generates the threat of bankruptcy.

Inflation Risk

With inflationary economy, the business has separate kind of financial risk. This type of risk is characterized by impairment on the real cost of capital (in the form of financial assets of the company) and the expected return on financial transactions in an inflationary environment (Dun & Bradstreet, 2007). Since this kind of risk in modern conditions is ongoing and accompanies virtually all financial transactions of the enterprise, it has constant attention from the financial management.

Investment Risk

It demonstrates the possibility of financial losses in the investment activities of the enterprise. The types of investment risk are divided in accordance with the types of activities; the risk of real investment and the risk of a financial ...