Question

What are the generic tools used to deal with the exposures in the area of financial risk management?

Note; please do research and link the website so I can cite it. Thanks

Answer 1

There are different types of risk that a firm might face and need to overcome. Risks can be classified into 3 types: Business risk, Non - business risk and Financial risk.

Financial risk as the term suggests is the risk that involves financial loss to firms. Financial risk generally arises due to instability and losses in the financial market caused by movements in stock prices, currencies, interest rate and more.

There are 5 main ways to manage risk:

1. Accept the risk: Accepting the risk means that you have identified it and logged it in your risk management software. You simply accept that it might happen and decide to deal with it if it does.

2. Avoid the risk: You can change your plans completely to avoid the risk.

3. Transfer the risk: Transference is a risk management strategy that is not used very often and tends to be more common in projects where there are several parties.

4. Mitigate the risk: Mitigating against a risk is probably the most commonly used risk management technique. It is also the easiest way to understand and the easiest way to implement. What mitigation means that you limit the impact of a risk so that if it occurs the problem it creates is smaller and easier to fix.