Risk Management - Research Paper Example

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Managing risk is a component of an organizations strategic and operational actions and evaluating financial risks is a vital part of a manager’s task. Risk management can be defined as the process of examining risks and developing strategies to minimize their harmful impact…
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Risk Management
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"Risk Management"

Download file to see previous pages Traditionally, the financial function was seen in respect to financial reporting and control. The modern theory of risk management reflects on the financial function in respect of financial policy and financial decision making. This comprises an organizations operational, business and economic risks.
There are various risks that are unacceptable which includes insurance risks, capital market risks, a market for replacing and equalizing such risks has been developed (Adams, Füss & Gropp, 2014). The paper identifies the issues in the risk management and its significant impact to the financial decisions of the manager of an organization. The paper also identifies the relevance and approaches to the risk management practices. Additionally, the impact of the new risk management regulations is critically evaluated.
There are mainly two types of risk in finance namely, systematic and unsystematic risks. Systematic risks are the one which are uncontrollable by the organization and unsystematic risks are the ones which are controllable by the organization. Interest risks, market risk and inflationary risks come under systematic risks and liquidity risks, credit risks and operational risks fall under unsystematic risks (Edgar financial market analysis, 2015). Various risks faced by managers of the organizations are descried under in details.
Market Risk- This type of risk deals with unfavorable price or instability that affects the assets contained in an organizations portfolio (Edgar financial market analysis, 2015). It can be explained as the doubt of a financial institution’s earnings which arises from changes in the market conditions like the price of an asset, interest rates and market liquidity.
Credit risk- This kind of risk takes place when one falls short to realize their commitments towards their counter parties. Sovereign risk and settlement risks are types of credit risk (Federal Reserve financial market analysis, 2014). Sovereign risk ...Download file to see next pagesRead More
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