RISK MANAGEMENT IN FINANCE

Risk Management in finance

Risk Management in finance

Introduction

Derivatives are contracts designed to offset the exchange risk. The choices are option contracts in which the party wants the option to pay certain fees for the right to buy shares or commodities, or a specific currency at a specified price at a specified date.

The objective of these contracts is the transfer of risk from the parent party to another. In the case of future contracts to swap the dollar and the euro, the goal of the Decade is to stabilize the exchange rate prevailing when the contract for the duration of the contract, so that if the right term solution to the parties exchange currencies regardless of the exchange rate prevailing at the time, either increased or decreased from the rate prevailing at the time of contracting. Similarly, in the choices, where the party is entitled to the owner of the option to buy the currency or the stock price specified at the time of contract, regardless of the prevailing price when the time comes. Because the purpose of these contracts is to transfer risk from one party to another, the more often (99% in the futures) is that the contract is settled when the permissible term (or earlier) to pay the difference between the price at the time and price fixed in the contract. The contract ends with the settlement of the difference in prices without a transfer of ownership of assets on which the contract, and that these contracts called derivatives, which it is derived from the assets associated with them, but not intended to transfer ownership, but the adjustment to differences in price. (Rohan, 2001, pp: 8-32)

The concept of risk:

The concept of risk can hardly needs to be defined because it is a clear concept used by people even in regular conversations. If the spokesman said "there is a risk at something," the listener to understand that talking about the situation of non-occurrence of certainty desired results and the possibility that the money is to something unpleasant to the soul. This is exactly what is meant by risk in the language of financial studies, it refers to the situation in which two possibilities are both subject to the occurrence. There is no doubt that the cases we have had probable cases and one is the lack of danger. And study the risks are the subject of a number of social sciences, including statistics, economics, and science of financial management and insurance. There is no doubt that the eyes of all knowledge of these sciences to risk to privacy that are unique from each other. With all the complexities that beset the theoretical study of the risks, the meaning does not come out of all these sciences from the above.

The relationship between the concept of risk and the concept of uncertainty:

The risk related to the concept of uncertainty. So that the risk is the probability of falling is ...