Preview

aaabbbas

Better Essays
Open Document
Open Document
10336 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
aaabbbas
Chapter 2
Overview of Financial Risk Management
RISK MANAGEMENT DEFINED
Risk management describes a collection of activities to identify, measure and ultimately manage a set of risks. Human enterprise in its various forms confront risks every day; the individual deciding whether to leave a relatively secure job for another with better opportunity and compensation across country; the government facing the threat of terrorist attacks on public transportation; or the bank having to determine which financial products it should offer to customers. While some risks are fairly mundane and others a matter of life or death at times, the fundamental process for assessing risk entails evaluation of tradeoffs of outcomes depending on the course of action taken. The complexity of the risk assessment is a function of the potential impact from a particular set of outcomes; the individual deciding to take a different job is likely to engage in a simpler risk assessment; perhaps drawing up a pros and cons template while a government facing terrorist threats might establish a rigorous set of quantitative and surveillance tools to gather intelligence and assign likelihoods and impacts to a range of outcomes.

Regardless of the application or circumstance, each of the assessments above has a common thread; namely the assessment of risk. But what exactly is risk and is it the same across all of these situations? Risk is fundamentally about quantifying the unknown. Uncertainty by its very nature tends to complicate our thinking about risk since we cannot touch or see it although it is all around us. As human beings have advanced in their application of technology and science to problem solving, a natural evolution to assessing risk using such capabilities has taken place over time. Quantifying uncertainty has taken the discipline of institutional risk management to a new level over the last few decades with the acceleration in computing hardware and software and

You May Also Find These Documents Helpful

  • Powerful Essays

    person centred risk

    • 3092 Words
    • 13 Pages

    A key part of risk is decision making. We have co-written a booklet on Supported Decision Making.…

    • 3092 Words
    • 13 Pages
    Powerful Essays
  • Satisfactory Essays

    Unit 3 Health and Saftey

    • 2038 Words
    • 9 Pages

    |risk management – it is important to take a balanced approach to| | | | | | | | | | |…

    • 2038 Words
    • 9 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Case Study

    • 600 Words
    • 3 Pages

    | A lot of risks of various types are present in the company because of uncertainties brought by incapability of bringing a definite plan out on the table. And to add, employees are having conflict in decision making.…

    • 600 Words
    • 3 Pages
    Satisfactory Essays
  • Best Essays

    There are many ways in which we can classify/categorise risks. Classifying or categorising risks includes ‘grouping similar risks together.’ (S. Condon, 2010.) The first of many categories being Business risk and Non-Business risk. Under Non-Business risks there are two ways in which we can further categorise risks, financial risks and Event risks. Later in the report, an assessment will be made of some of the financial…

    • 2290 Words
    • 10 Pages
    Best Essays
  • Powerful Essays

    Following the identification of a risk, the assessment of it should naturally follow. While there are many flaws in the various ways risk is assessed, largely due to the issue of perception, there remain both qualitative and quantitative methods of measuring risk. Methods of risk assessment identified by Hubbard (2009, p.24-27) include expert intuition, expert audit, simple stratification methods, weighted scores and probabilistic models, all of which are recommended in the assessment of risk at…

    • 1330 Words
    • 6 Pages
    Powerful Essays
  • Better Essays

    Financial Risk Management

    • 2550 Words
    • 11 Pages

    Financial risk includes losses due to undesirable changes in commodity and security prices as well as negative variations in currency and interest rates. Companies tend to hire specialists, such as statisticians, to develop quantitative financial risk management tools.

(Codjia, n.d) The center of risk identification may be at any level of management, such as the overall company, a specific business unit, functional area, project, or process. Because of this, one must have clear objectives to consistently identify events that might give rise to risks that could prevent reaching a goal, strategy or objective. The key questions to ask in risk management are: “What could stop us from reaching our top goals and objectives?” and “What would materially damage our ability to survive?” (Enterprise, 2007)…

    • 2550 Words
    • 11 Pages
    Better Essays
  • Satisfactory Essays

    Risk and Return Analysis

    • 7435 Words
    • 30 Pages

    Each of the group members took up each of the bank and did their respective…

    • 7435 Words
    • 30 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Aabb

    • 348 Words
    • 3 Pages

    I graduated from University of San Agustin last October 2013 and recently passed the Medical Technologist Licensure Examination March 2014.…

    • 348 Words
    • 3 Pages
    Satisfactory Essays
  • Better Essays

    financial risk management

    • 973 Words
    • 4 Pages

    Financial risk management is an interdiscipline with various researching subfields including the studies of mathematical methods to maximum the profits, quantitative analysis of financial databases and investment decisions. In other words, it is aimed to bridge the gap between mathematical theories and practical financial analysing tools (Nawrocki 1999). It could also be defined as“Living with the possibility that future events may cause adverse effects” (Kloman 1999). Risk and profit are always an integral. The variety of risks including portfolio risk, credit risk and liquidity risk became a financial conundrum which equalled to a group of destructive nuclear bombs hidden in the monetary market. Consequently, the risk management represents the core competence in insurance and banking industries. With the innovation of IT technology, more advanced computer software has been introduced in financial area which results that the risk management has made impressive strides in last decade. As the academic field mature constantly, the abstract mathematical and statistic concepts reifies to accessible programs which could predict the trends of investment returns, for example, the expected earnings at the end of next week after buying certain amount of stock at next Monday (Chapman 1996, iv).…

    • 973 Words
    • 4 Pages
    Better Essays
  • Powerful Essays

    insurance risk

    • 1997 Words
    • 7 Pages

    Risk may be sub-classified as financial or non-financial, dynamic and static, fundamental and particular, and pure and speculative. The distinguishing characteristics of each class are discussed at ¶1-080 to ¶1-120 of the text. The distinction between financial and non-financial risks is very evident: financial risks have financial consequences, while non-financial risks do not. Dynamic risks are those that arise from changes in the economy, such as tightening of money supply while static risks exist even in the absence of economic change. Fundamental risks are those that are impersonal in origin, such as war and the consequences are generally beyond the control of the individual. Particular risks are personal in origin and consequence, such as fire damage to a dwelling and are generally considered to be the individual’s own responsibility. Pure risks are those in which there is a chance of loss or no loss only as opposed to a speculative risk where there is both a chance of a gain or loss.…

    • 1997 Words
    • 7 Pages
    Powerful Essays
  • Powerful Essays

    “Risk Management is the Identification, Analysis and Economic Control of those RISKS which can Threaten the Assets (Property, Human) or the Earning Capacity of an Enterprise”…

    • 1212 Words
    • 5 Pages
    Powerful Essays
  • Satisfactory Essays

    – Uncertainty refers to outcomes not contemplated during the decision-making process – Risk refers to outcomes that have been contemplated, and are quantified as probabilities…

    • 1167 Words
    • 5 Pages
    Satisfactory Essays
  • Best Essays

    Hood, C.C., Jones, D., Pidgeon, N., Turner, B. and Gibson, R. (1992) ‘Risk Management’ in The Royal Society Report (1992) Risk: Analysis, Perception and Management, London: Royal Society, 135-201.…

    • 2642 Words
    • 11 Pages
    Best Essays
  • Powerful Essays

    Operational Risk Management

    • 2623 Words
    • 11 Pages

    Risk is inherent in any walk of life in general and in financial sectors in particular. Till recently, due to regulated environment, banks could not afford to take risks. But of late, banks are exposed to same competition and hence are compelled to encounter various types of financial and non-financial risks. Risks and uncertainties form an integral part of banking which by nature entails taking risks. There are three main categories of risks; Credit Risk, Market Risk & Operational Risk.…

    • 2623 Words
    • 11 Pages
    Powerful Essays
  • Powerful Essays

    Analysis of risk and its proper management is very necessary to strike a proper risk-return trade off in present scenario.…

    • 1453 Words
    • 6 Pages
    Powerful Essays

Related Topics