Question

Using appropriate business situation in any in any country, explain the importance of effective financial risk management.

Answer 1

Risk is inherent in any business operation and good risk management is essential if you're going to identify and stop revenue leakage from your business. Anything that relates to money flowing in and out of the business is a financial risk. Financial risk management is the process of understanding and managing the financial risks that your business might be facing either now or in the future. The key to any financial risk management strategy is the plan of action. These are the practices, procedures and policies your business will use to ensure it doesn't take on more risk than it is prepared for. In other words, the plan will make it clear to staff what they can and cannot do, what decisions need escalating, and who has overall responsibility for any risk that might arise. Financial risk management is an essential element of any successful business.
Develop the answer for importance of financial risk management, through the following key points:

-Planning for potential risks allows for the creation of a financial business strategy that seeks a constant upward trend.
-Financial risk management not only seeks to forecast potential problem areas, but it also works to predict opportunity. This enables the business to act quickly on what it sees as good investment scenarios and to work to maximize the financial benefit of these opportunities.
-The team is able to forecast how the market will respond to competition, enabling the business to create a strategy that accounts for a field with multiple players. A business with a well composed financial risk management plan is able to remain aggressive in the market within its own pre-determined risk and opportunity scenarios.