Risk Management in Corporate Finance

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Risk Management in Corporate Finance Risk management in corporate finance involves creating an economic value in an organization through financial instruments in managing exposure to threats. This is particularly market risk and credit risk. Financial risk management has become the center stage of all global organizations. It is not just a concern but also a strategic area of focus. Such focus demands a greatly specialized talent (Wunnicke, Wilson & Wunnicke, 2007). Executives in corporate finance require a broader perspective of risk locations within the firm. They require an accurate and effective approach to manage the continuous evaluation cycle of financial risk management. Financial executives look upon a robust functionality and powerful tools in making complex decision. Financial risk management theory argues that firms must take on projects when the projects increase the shareholder value. In addition, this theory prescribes that financial executive cannot create shareholders value by taking a project that shareholders could not deliver at similar costs (Damodaran, 2008). In corporate finance, firm managers must not invest in risks that even the investors would not hedge for themselves. In any perfect industry, a business cannot create shareholders value through hedging risks when the cost of bearing the risks in the organization is similar to the cost of bearing the risks outside the organization. Practically, corporate finance markets are never expected to be
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