Question

1. How can risk management be described as a process? Discuss portfolio of risk management with suitable examples.   

2. Risk analysis after risk recognition is a complete step for risk management. If not, then discuss complete steps of risk management.

3. What do you understand by risk management approaches? Give your opinion on each approach as to whether they are perfect to manage the risks?

4. What do you mean by risk aversion? Discuss about your attitudes of risk with evidences and examples.

5. Discuss all attitudes of an individual with risk premium impacts.

Short essay ( only one paragraph for every question ).

Answer 1

A Thumbs Up! Would be really helpful for me. If you have any questions, please leave a comment and I will get back to you as soon as possible.

Risk management can be described as a process of managing the risk, through proper planning, organizing, directing and controlling of various financial and human aspects of the organization, which can cause risk.

Portfolio risk management is the management of risk which is related to our portfolio of investment in different assets, they would be unable to cover up our debts and we will have to suffer losses. For example, managing director which is related to a decrease in the market price of a product is an example of portfolio risk management. There are also chances of increasing the prices of our raw material or interest rate. All such things are covered in this.

No, risk analysis after risk recognition is not a complete step for risk management. After analyzing, there is a need to evaluate the risk and its consequences, and according to that, we would try to control the risk which would be followed up by its reviewing and monitoring after a period of time.

Risk management approaches are those methods or techniques that would help in providing ease of managing the risk. There are mainly for a project for risk management: avoidance, mitigation, transfer and acceptance. Avoidance includes avoiding the portfolio which can contain risk. Risk mitigation includes trying to reduce or mitigate the risk factor. The transfer includes transferring the risk with the help of coming into contact with any insurance agency. Acceptance of risk includes accepting for retaining the risk. But according to me, avoidance is not perfect to manage the risk, is one can indirectly suffer from huge losses because of profits that could be earned with the help of that.

Risk aversion refers to the human behavior of avoiding as much as possible and accepting any portfolio which contains lower risk as compared to the one with higher risk. For example a person might choose a bank account with a lower rate of interest, when provided by a reputed and trusted bank as compared to a nonrepeated and nontrustworthy Bank providing a high rate of interest.

Attitudes of an individual with risk premium impacts:

If a positive risk premium is given, then risk-taker would take that, risk-neutral would not get attracted from risk premium, risk-averse would search for zero risk premium.