Why Firms Should Manage Financial Risks?
Q) Why firms should manage Financial Risks?
INTRODUCTION: The etymology of the word “RISK” can be traced to the Latin word “RESCUM” meaning danger at sea or that which cuts. Managing business in a highly volatile environment is like navigating a ship on stormy seas. The modern business is confronted with many risk, some of which are basic eg., loss of property due to natural calamities, civil unrests etc., and some are strategic risks. Strategic risks may manifest themselves in several ways like foreign exchange rates or interest rates or commodity prices impacting the expected value or the real cash flow. In recent years, life has become a lot more complicated. Today firms are confronted with business risks that are greater and more varied than ever before. The same technology that has dramatically improved our way of life has also created the potential for disasters some of them like, in 1970s and 1980s, financial and commodity asset prices became quite volatile due to a varity of factors, such as the breakdown of the Bretton woods system of fixed exchange rates, the oil price shocks in 1971 and 1973 because of the excess government spending and inflation policies etc.
Purpose of Risk Management The purpose of risk management is not necessarily to avoid risk altogether, and complete elimination of risk is not possible. Instead the purpose of risk management is to identify which risk are relevant and in what amount for the smooth functioning of an business or an organization that helps in devising suitable strategies to handle relevant risks
Risk Management concept and Definition
Risk management is one of the specialized functions of general management, as such risk management shares many of the characteristics of general management, and yet is unique in several important respects.
The strategies include transferring the risk to another party, avoiding the risk, reducing the negative effect of the risk, and accepting some or
INTRODUCTION: The etymology of the word “RISK” can be traced to the Latin word “RESCUM” meaning danger at sea or that which cuts. Managing business in a highly volatile environment is like navigating a ship on stormy seas. The modern business is confronted with many risk, some of which are basic eg., loss of property due to natural calamities, civil unrests etc., and some are strategic risks. Strategic risks may manifest themselves in several ways like foreign exchange rates or interest rates or commodity prices impacting the expected value or the real cash flow. In recent years, life has become a lot more complicated. Today firms are confronted with business risks that are greater and more varied than ever before. The same technology that has dramatically improved our way of life has also created the potential for disasters some of them like, in 1970s and 1980s, financial and commodity asset prices became quite volatile due to a varity of factors, such as the breakdown of the Bretton woods system of fixed exchange rates, the oil price shocks in 1971 and 1973 because of the excess government spending and inflation policies etc.
Purpose of Risk Management The purpose of risk management is not necessarily to avoid risk altogether, and complete elimination of risk is not possible. Instead the purpose of risk management is to identify which risk are relevant and in what amount for the smooth functioning of an business or an organization that helps in devising suitable strategies to handle relevant risks
Risk Management concept and Definition
Risk management is one of the specialized functions of general management, as such risk management shares many of the characteristics of general management, and yet is unique in several important respects.
The strategies include transferring the risk to another party, avoiding the risk, reducing the negative effect of the risk, and accepting some or