Financial Risk Management

Financial risk management is not a new area of corporate finance but it certainly is not the most glamorous or favorable area to be in and is gaining more attention in the current economic crisis. Risk management is a part of many different lines of work, but all have the same purpose; identifying risk is imperative to success so that you can also discover ways to mitigate or avoid the problem and make sounds decisions. “Financial risk is the loss expectation arising from adverse security prices or a business partner 's default.” (Codjia, n.d.) It is a given in all economic activities regardless of the type whether it be charities, schools, government, or business; every organization will have financial risk. Accounting principles require a company to record operating losses at market values in their financial statements. Every business has two major responsibilities as Jeffrey Immelt, Chairman and CEO at General Electric Co. out it, “My job is to figure out how to grow and manage risk and volatility at the same time” (Enterprise, 2007) Financial risk includes losses due to undesirable changes in commodity and security prices as well as negative variations in currency and interest rates. Companies tend to hire specialists, such as statisticians, to develop quantitative financial risk management tools.

(Codjia, n.d) The center of risk identification may be at any level of management, such as the overall company, a specific business unit, functional area, project, or process. Because of this, one must have clear objectives to consistently identify events that might give rise to risks that could prevent reaching a goal, strategy or objective. The key questions to ask in risk management are: “What could stop us from reaching our top goals and objectives?” and “What would materially damage our ability to survive?” (Enterprise, 2007) There are a few major areas of financial risk management; credit risk management, risk and control assessment, and

References: Cho and Dennis. (2010) Obama Administration Vows to Defend Financial Reform. The Washington Post. Retrieved from http://www.washingtonpost.com/wp-dyn/content/article/2010/04/07/AR2010040705021.html?hpid=sec-business (5 January 2013) Cinderella’s Moment. (2010). In The Economist. Retrieved from http://www.economist.com/node/15474145?story_id=15474145 (4 January 2013) Codjia, Marquis. (n.d) Financial Risk Management Tools. eHow Money. Retrieved from http://www.ehow.com/list_6717071_financial-risk-management-tools.html (4 January 2013) Codjia, Marquis. (n.d) Financial Risk Management Strategies. eHow Money. Retrieved from http://www.ehow.com/list_6705024_financial-risk-management-strategies.html (2 January 2013) Enterprise Risk Management: Tools and Techniques for Effective Implementation. (2007) Institute of Management Accountants. Retrieved from http://poole.ncsu.edu/erm/documents/IMAToolsTechniquesMay07.pdf (3 January 2013) Global Association of Risk Professionals (GARP). (2012) Financial Risk Management(FRM) Program. Retrieved from http://www.garp.org/frm/frm-program/about-the-frm-program.aspx (3 January 2013) Martin, Michael. (2010) Risk Management: Lots of Lucrative Jobs for Finance Geeks. CBS News. Retrieved from http://www.cbsnews.com/8301-505125_162-51412172/risk-management-lots-of-lucrative-jobs-for-finance-geeks/ (2 January 2013)