Question

For the international financial manager risk evaluation and risk management are critical. Why is this so? What attitudes can managers adopt to different risks and how will this affect the way the risks are likely to be and ought to be managed? (600 WORDS)

Answer 1

Financial risk management refers to the process by which companies identify potential risk with respect to its finances, analyze them and draw up precautionary measures and startegies to avert or minimio such risks.

It is essential for banks, NBFC and corporate houses.

It is very difficult task for financial risk manager, who an certified professional and who has expertise in market, investment credit and operational risks that companies may face and tools for their effective management. That's why they are considered as an important people in an organisation with their unique skill set and knowledge.

- Finance managers designs comprehensive risk management process, procedures an policies of an organisation. They also plan and execute strategies for risk management.

- They identifies potential financial risk facing the organisation and analyzes the possible impacts. For this purpose, they draft a clean and holistic methodology for risk identification assessment and analysis.

The assessment and analysis should be able to show the depth and magnitude of risks as well as estimate the costs for the organisation.

So, Financial manager may choose to develop software/ computer programs or use statistical method for assessment.

Risk evaluation- The intensity and magniu of the risk needs to be evaluated and based on the organisation's risk management policies, certain guidelines for minimising/ averting risks or easing the impact it creates and legal and relevant authorities guidelines will have to be followed in terms of insurance, costs , legal requirements, environmental regulations so on.

These elements must be carefully budgeted.

The organisation's previous handling of risks will also have to evaluated and taken into cognizance. Financial manager does all this.

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Managers identify the sources of risk, measuring it and plans to address them.

It can be quantitive and qualitative. Managers focus on when and how to hedge using financial instruments to manage costly exposures to risk.

In banking sector worldwide the Basel Accords adopted internationally for tracking, reporting and exposing operational , credit and market risks.

Some common ways for properly management of risk-

- Carry the proper amount of insurance

-Maintain adequate emergency fund

-Diversify the Investments

- Have a second source of income

-Have an exit strategy for every Investment made

- Hedging the risk

- Keep debt to a minimum