Risk Management Task 1a

4779 Words Jan 14th, 2014 20 Pages
JIT Task 1 Risk Management
Risk Management

From the last decade risk management is the most researched and exciting area in the financial industry as it elaborates how to minimize and avert the hazard of risk from the portfolios of different assets and from the operations of financial institutions. Regulators and depositors mainly emphasize the risk management and according to them risk management is an essential ingredient to enhance the value of shareholders and increase their level of confidence. Risk management is the assessment of risks to mitigate, monitor and control the probability or impact on uncertain events. Risk management methods vary from industry to industry for instance it cannot be same for project management,
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Companies and

governments operating in the complex economic environment of the 21st century must contend with a broad range of risks. Some do so in an adhoc or reactive fashion, responding to risks as they appear, whilst others are proactive, planning in advance the risks that they wish to assume and how they can best manage them. Since it has become clear over the past few years that risk can be financially damaging when neglected, anecdotal and empirical evidence suggests that institutions increasingly opt for formalized processes to manage uncertainties that can lead to losses. Risk can be classified in a number of ways and though we do not intend to present a detailed taxonomy of risk, a brief overview is useful in order to frame my discussion. To begin, risk can be divided broadly into financial risk and operating risk. Financial risk is the risk of loss arising from the movement of a market or performance of a counterparty and can be segregated into market risk (the risk of loss due to movement in market references, such as interest rates, stock prices or currency rates), liquidity risk (the risk of loss due to an inability to obtain unsecured funding or sell assets in order to make payments) and credit risk (the risk of loss due to non-performance by a counterparty on its contractual obligations). A rise in funding costs, an inability to sell financial assets at carrying value or the default by a counterparty on a loan are examples of

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