Question

create a profile of its risk management strategy of a company. Select from the following topics to address in your profile.

How does the firm think about risk?

What types of risks does the firm attempt to hedge?

Which of the tools (forward contracts, futures, swaps, options) does the firm uses?

Is the firm's board of directors involved in enterprise risk management?

Does the firm have a chief risk officer (CRO)?

minimum 400 words

Answer 1

Company risk is the financial uncertainty faced by an invester who holds securities in a specific firm. It's also called company specific risk, unsystematic risk and diversifiable risk.

The risk of owning a company can be mitigated through investing strtategies such as diversification and purchasing securities or assets that are uncorrelated. Company risk is the risk that certain factors, whether interanal or external, will affect a company. This includes changes in a company's products or financial postition that could negatively impact a company's stock price. Investors can proacively limit a portfolio's exposure to the ups and downs of a single company's performance.

Systemnatic Vs Unsystematic risks

While unsystematic risk is the company-specific risk, systematic risk is the uncertainty associated with investing in the broader market. It cannot be diversified away because it affects all the securities in the market. Major political and economic events usch as wars, recessions due to COVID-19 are examples of events that pose a systematic risk. Investors can reduce their exposure to systematic risk through hedging

While risk is an essential part of achieving higher levels of investment gains, the amount of risk undertaken can be managed and customized to each investor's timeframe, required rate of return and risk tolerance.

There are many types of company risks.

There are many types of firm-specific risks hat could affect the potential profitability or even the solvency of a company. This can include such things as regulation changes that hurt a company or a forced recall. As well, new competitors and fraud can also pose a risk.

There arealso certain financial risks with how a companyhandles money. Mismanagement of finance and investment without planning and study is also a risk factor of the company. A company may be affected positively or negatively by changes in the rates at which they can borrow and how much debt they carry on the books. A firm may also be overly-reliant on growing revenue from a small or key group of clients.

Market Risk

A Company also has to be careful with public relations risk to its reputation. An influencer may one day be raving about a product and, the next day, lead a boycott over its usage. A published study or government regulator may list a compny's product as unsafe or flawed risking the reputation of the business to make quality goods.

Operational Risk

Operational risk can result from unforeseen and / or negligent events such as a breakdown in the supply chain or a critical error being overlooked in the manufacturing process.

Risk mangement tools which firms adopting are pre-trade analysis, Hedge optimizatgion, subsidiary staging, trade execution, product pre-launch survey, transaction cost analysis,

Without becoming directly involved in the managing risk, board of directors can fulfill their role in risk oversight by:

- developing policies and procedures around risk that are consistent with the organization's strategy and risk appetite.

- Making follow ups on management's implementation of risk management policies and procedures.

Boards should take a stronger role on big matters. This means matters that may have a negative impact on the organization or with regard to matters that have strong financial stakes. This doenot mean that the board should get directly involved in management issues.

Yes, Firms have a Chief Risk Officer. The Chief Risk Officer (CRO) or Chief Risk Management Officer (CRMO) of a firm or a corporation is the chief executive accountable for enabling the efficient and effective governance of significient risks and related opportunities, to a business and its various segments.