2.0 RISK MANAGEMENT ISSUES FROM ELECTRICITY INDUSTRY. Risk management is an important part of any business, before you manage a risk u must identified the risk involved in that business first. In electricity industry companies are exposure to higher risks today than the early part of the sector (European Union of the electricity industry, 2006). Exposures to regulatory and market risks, to be specific, have it increased notably which can lead to either negative or positive impact on profit limits. In many European countries today, deregulation forced divide the ownership between non-regulated and regulated activities, leaving portion of the business such as wholesale, generation and retail without the protection of stable, measured cash flow. In electricity industry we have four main risks facing the sector which are the market risk, operational risk, credit risk and business risk.
MARKET RISK
This is the risk of financial gain or loss due to exposure to movement in market prices. The four standard market risks are currency risk, equity index risk, interest rate risk and commodity risk. Currency risk is a financial risk that occurs when a financial transactions is denominated in a currency other than that of the company based currency. Equity index risk is the financial risk that has to do with the holding equity in a specific investment. The risk in equity can be measure with the standard deviation of a security price over a specific period of time. Interest rate risk is
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”.
Systematic risk or market risk is the risk that affects a large number of assets. Examples of systematic risk are inflation or increasing the interest rate, or any uncertainties in the economy but not the company 's performance. Unsystematic risk is the risk that mainly associated with specific companies or may be some competitors and suppliers. The systematic risk affects the whole market and cannot be controlled by investors. Unsystematic risk however affects the company and is controlled by the company 's performance. When investors invest money into a company they must research all aspects of that company so they are aware of the unsystematic risks they may encounter.
The internet is a great way to find the information needed in a fast manner, but it also provides negative outcomes. The use of technology has become overly important to how society functions on a daily basis. People rely on their phones and computers constantly during the duration of the day and prefer to use these forms of tech over face to face interaction. In Fahrenheit 451, books have been outlawed by the government because people stopped reading them and they discussed controversial topics making them do more harm than good. Guy decides to start saving books from the fires and revolts against the hate for books because he thinks that people need to know the knowledge that they hold. He is married to a woman named Mildred who is very concerned about watching her programs and does not really love Guy. Throughout Ray Bradbury’s Fahrenheit 451, with the overuse of technology, individuals have become shallow and void of awareness, this also occurs today.
The text leading up to the old man hooking the Marlin shows how much Santiago loves to fish. It is obvious that he is very skilled and that he takes it seriously. Santiago’s lines are always straight and he notices small things like the way a bird circles. He also takes the weather and sun’s position into account. These details show how significant fishing is to Santiago and how fishing is truly his profession. He is obviously a skilled fisherman and his bad luck seems very unjust. This also makes you understand Manolin’s respect for him and makes the old man seem more like a hero and less pity for him. Seeing fishing as a profession is different and intriguing for me, because I normally think of it as a recreational activity. The way it is
Financial risk is the risk a corporation faces due to its exposure to market factors such as interest rates, foreign exchange rates, commodities and stock prices. Financial risks for the most part, can be hedged due to the existence of large, efficient markets through which these risks can be transferred. This is unlike operating risk, which is associated with more manufacturing and marketing activities. Operating risk cannot be hedged because these risks are not traded.
Being risk averse in an industry plagued with risk is a difficult task. However, identifying and managing risk is crucial in the capital intensive energy industry. Effective risk management leads to increased revenues, decreased costs and capital, and can propel a business to success. The information outlined will offer a discussion of how to identify and mange areas of risk and additionally, detail a process flow for successful implementation.
2. Some risks that are common between domestic and international funds are: losing money and management risk. Any investment has some type of risk. Losing money is the first risk that every investment has whether it is domestic or international. Management risk is the bad management decisions that a company makes. Some unique risks that only international funding has are: economic risk, country/regional risk, and currency risk. Currency risk is the chance that the value of a foreign investment, measured in U.S. dollars, will decrease because of unfavorable changes in the currency exchange rates. Economic risk is the stability of a country’s economic. Country/regional risk is political, financial troubles, and natural disasters that will affect the value of securities issued by companies in foreign countries or regions.
The first category of financial risk is exchange risk. For BMW Group, the sale of vehicles outside the Eurozone gives rise to exchange risk because changes in exchange rates, especially between the US dollar, Chinese renminbi, British pound, Russian rouble, and
Risk management refers to the process involved in identifying, analyzing and acceptance or preventing of uncertainty in an investment decision making process (Dorfman, 2007). In most cases, risk management is carried out to control losses that may occur as a result of an event that may occur in a business. It is good to note that failure by a business to take adequate risk management can result to severe loss or consequences, not only for the business, but also for individuals. In simple terms, this is a two step process that involves determining the risks that may arise and the dealing with the risks in a way that is most effective for your business investment goals (Hubbard, 2009). This article provides an example of how failure to put the right risk management strategies can lead to massive loss in a business. The article uses Spear Investment Company located in New York as a perfect example of a business that failed to apply risk management properly. The paper will also look at how the company management would have acted before to avert the consequences.
When making investment decisions it is important to quantify the relationship between potential returns and the underlying risks. In this situation, the client is considering making an equity investment in Country X which would expose the client to Equity, Sovereign, and Currency Risk. Equity Risk is the risk of investing in equity markets as opposed to risk-free options. Sovereign Risk is the risk that Country X will default on its debt. Currency Risk is the risk of adverse exchange rate shifts; this is primarily the relationship between inflation expectations in Country X and the US.
Investors and financial scholars describe the systematic risk – also known and non-diversifiable risk- as the component of an investment that is totally related to the return from the market (Hull, 2015, p. 8). In other words, it depends on the conditions of the market, which is affected by the inflation rate, exchange rate, interest rate and economy growth rate (Atrill, 2014, p. 215).
The research takes a case study approach. The case study analysis dwelt on risk management by Contractors who work on energy and utility construction projects, including strategies and supporting structures for managing risks, complete with an analysis of how these strategies and structures are implemented and supported by the Contractors resources base. The researcher specifically chose utility contractors for this study as the Energy and Utilities sector play an indispensable role in the global economy and in the UK, industry employs around 2% of the UK workforce (AGCAS, 2012). Moreover, the UK government identified the Utilities companies as companies that are heavily involved in risky incidents affecting their sector thus playing a crucial role in the preparation and planning for emergencies responsibilities (UK Government, 2013). According to Yip (2003) construction is risky as it almost always certainly involves loss of time and money. Above all, any denial of service during outage result in impact on communities (Lindman, 2008) and utility services are no exception. Against this background, it could be argued that contractors working on construction projects undoubtedly play a significant role in managing risks in order to stay in business.
Enterprise risk management (ERM) is a relatively new discipline that focuses on identifying, analyzing, monitoring, and controlling all major risk classes (e.g., credit, market, liquidity, operational risk classes). Operational risk management (ORM) is a subset of ERM that focuses on identifying, analyzing, monitoring, and controlling operational risk. The purpose of this paper is to explain what enterprise risk management is and how operational risk management fits into the ERM framework. In our conclusion, we discuss what is likely to happen in the ERM / ORM environment over the next 5 years. Introduction As
Financial risks would involve all those aspects which deal mainly with financial aspects of the bank. These can be further subdivided into Credit Risk and Market Risk. Both Credit and Market Risk may be further subdivided.
The outcomes are thrown open to uncertainty. In general, when we talk about risk, we focus on financial risk. In financial terms, it is the risk that a company or individual could lose some or all of the original investment, possibly resulting in inadequate cash flow to meet financial obligations. All wise investments follow risk consideration. To be successful, every investor must be able to identify and understand the types of risk they face across their entire portfolio.