Risk 1

At the end all the risk are finance related, because the liability’s cost money and this will have an effect in the company’s earnings, so what is important is not only to try to avoid such events but also to be prepare in case they happen and have a plan, is like the saying “Hope for the best but be prepare for the worst”.

Is that make loans or buy bonds with long maturities are relatively more exposed to credit risk. Foreign exchange risk, is the risk that exchange rate changes can affect the value of an FI’s assets and liabilities denominated in foreign currencies. FIs can reduce risk through domestic-foreign activity. Liquidity risk, is the risk that a sudden and unexpected increase in liability withdrawals may require an FI to liquidate assets in a very short period of time and at low prices. Can be day-to-day withdrawals by liability holders are generally predictable. And are usually large withdrawals by liability holders can create liquidity

Risk management is a process for identifying, assessing and prioritizing risks of different kinds. Once the risks are identified, the risk manager will create a plan to minimize or eliminate the impact of negative events. A variety of strategies is available, depending on the type of risk and the type of business. There are a number of risk management standards including those developed by the Project Management Institute the International Organization for Standardization the National Institute of Science and Technology and actuarial societies. Organizations uses different strategies in proper management of future events such as risk assumption, risk avoidance,

Pure risk exists when there is uncertainty as to whether loss will occur. There is no possibility that a gain is presentedonly the potential for loss.

b. Other indications of financial difficulties (default on loan or similar agreements, arrearages in dividends, denial of usual trade credit from suppliers, restructuring of debt, noncompliance with statutory capital requirements, the need to seek new sources or methods of financing, or the need to dispose of substantial assets).

Risk is defined as the probability that a company will become insolvent and will not be able to meet its obligations when they become due for payment. The profitability versus

b. The firm is required to make a cash payment for the goods or services.

Before the 2008 financial crisis many large financial firms were incapable of adequately assessing the chance that they would suffer large losses that could lead to their failure. As large firms began to suffer losses in late 2007, they made little effort to rebuild their capital buffer—either by reducing shareholder payouts or raising new equity capital—even though they easily could have

Any setting or activity carries a level of risk form the different types of risks:

2) The amount and nature of the company’s liabilities, including the degree of reliance on short-term funding.

Market risk is the risk associated with an investors day to day investments, that are affected by constant fluctuations in the markets. With investment banking, a banks reputation is a critical in its success, reputational risk describes the trustworthiness of a business. A firm with a poor reputation will not get as much business, meaning a bad reputation results in a loss in revenue. Concentration Risk is the risk showing the spread of a banks’ accounts to various debtors to whom the bank has lent to. The Basel II accord stated that ‘operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events’. This risk covers the very wade basis of a company’s operations, there are many different factors involved here: people, employees actions and company processes.

Risk management is the term applied to a logical and systematic method of establishing the context, identifying, analyzing, evaluating, treating, monitoring and communicating risks associated with any activity, function or process in a way that will enable organizations to minimize losses and maximize opportunities. (Lecture notes)Risk Management is also described as 'all the things you need to do to make the future sufficiently certain'. (The NZ Society for Risk Management, 2001)

In the recent past, there have been concerns in the companies and businesses such that they have to show their credit worthiness before they are given a loan. The UK has been fluctuating due to global inflation rates and therefore this has caused uncertainty of the business. This has made the lending institutions to be strict in evaluating the credit risks of the wholesale and the SMEs.Credit risk will measure the probability of a business getting a loss due to a business failure of settling loans. This convectional credit risks results from the the possibilities of defaulting of the debts, an investment or invoice. The defaulting of the loans is the major cause of the wholesale credit risk. Individuals or businesses will always default because of lack of collateral or guarantors to settle the debts.

Risk management is an activity which integrates recognition of risk, risk assessment, developing strategies to manage it, and mitigation of risk using managerial resources. Some traditional risk managements are focused on risks stemming from physical or legal causes (e.g. natural disasters or fires, accidents, death). Financial risk management, on the other hand, focuses on risks that can be managed using traded financial instruments. Objective of risk management is

In above case there might be companies that are healthy and many go through period of financial distress. In particular is the threat of not being able to meet debt obligations.