Question

In a paragraph explain how does risk affect a company's financial decisions? What risks should a CFO consider in making a decision? Name at least five and describe each.

Answer 1

Risk will be affecting various financial decisions which are made by the company and it will be mostly proactively analysed because these risk will be affecting the overall profitability of the company and the chief financial officer will be discounting these risks in advance in order to better adapt to these situations because various risks which are systematic in nature can never be eliminated so they will have to prepare themselves accordingly in order to mitigate the risk and have minimised effect of those risks on the profit of the company. Chief financial officer should be considering political risk which is a risk related to the changes in the politics and the governance of the country. He will also factor in for monetary policy risk which will be leading to change in the monetary policy and it will lead to change in the interest rates in the economy. He will also estimate the the demand change risk because changing demand risk will be risk affecting the overall revenues of the company. Diversification risk is another risk because if the company is too much diversified it will be leading to trading off the profits between different divisions. Inflation risk should also be discounted as there will be a rising pricing of cost of goods for the company.