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Investment Risk Management - Essay Example

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Investment Risk Management Tutor Date: Introduction Risk involves any divergence/deviation from the anticipated results. On the contrary, investments risk management involves a process of identifying, analyzing, assessing, controlling and mitigating risk (Chong, 2004).The study aims to investigate information relating to Lehman Brothers’ bankruptcy, the financial risk factors that contributed to the failure and management’s responsibility for such failure…
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Investment Risk Management
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Download file to see previous pages 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 government. Among the services that were rendered by the company include; banking services, equity investments, consultancy services, buying and selling of treasury securities to mention just but a few (Sorkin, 2008). 1. Factors that contributed to financial failure of the Lehman Brothers Holding Company. According to Azadinamin, 2003 numerous factors contribute to failure of Lehman Brothers Holding Company. ...
This led to higher cases of defaults as most of the house holds could not be able to repay the loans and interest rates that were attached on those loans. This consequently led to the collapse of Lehman and brother holding company (Azadinamin, 2003). Additionally, manipulation of financial statement such as balance sheet contributed to failure of Lehman failure. For example; it was reported that fifty billion dollars on loans commitment were intentionally removed from the balance sheet and recorded as sales in the income statements rather than loans. Connectively, the company was operating a negative cash flow statement prior to its collapse. Therefore, I could recommend to the senior management of Lehman brother Company to perform credit selection and moral hazards prior granting mortgages (Azadinamin, 2003). Additionally, Lehman management should avoid unethical accounting practices and propagate high ethical standards in financial reporting. The company should have realistic and achievable strategies. For example, instead of buying assets and storing them, the company could transfer them to third party and earn more returns. Lehman management focused only at evaluating the balance sheet and ignored cash flow evaluation, making it difficult to detect the potential risk that led to its collapse. Therefore, I could have recommended Lehman management to evaluate all its financial statements in order to detect risk and failures before they occurs and establish necessary mechanism to deal with such failures (Azadinamin, 2003). 2. Sufficiency assessment of risk management techniques used by financial institutions today Financial ...Download file to see next pagesRead More
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