Financial Risk Management

Ramsha Rashid

INTRODUCTION TO RISK MANAGMENT

DEFINATION:

Risk Management is a scientific approach to deal with pure risk by anticipating possible accidental losses and

designing and implementing procedures to minimize the occurrence of loss or the financial impact of the loss that

do occur

THE RISK MANAGEMENT PROCESS

• Determination of objectives• Identification of risk• Evaluation of risk• Considering the alternative and selecting the risk

treatment device• Implementing the decision• Evaluation and reviews

RISK MANAGEMENT & SPECULATIVE RISK

• In finance risk management means financial risk management, which deals with speculative risk

• Financial risk management is a subset of enterprise risk management

RISK MANAGEMENT TOOL

Two broad approaches used in risk management are:

1. Risk Control:

Consists of those techniques that are designed to minimize , at the least those cost to which organization is exposed to

Methods used to control risk are

1.1 Risk Avoidance: • It takes place when decisions are made that prevent a

risk from even coming into existence.• Risk are avoided when organization refuses to take the

risk• Is used in those instances in which the exposure has

catastrophic potential and the risk cannot be retained or transferred

• It should be rarely used.

1.2 Risk Reduction:Consists of the techniques that are designed to

reduce the likelihood of a loss.

The second risk management approach deals with

2. Risk Financing:

Techniques that focuses on arrangements designed to guarantee the availability of funds to meet those

losses

2.1 Risk Retention:

Any risk that cannot be reduced, transferred or avoided are retained

2.2 Risk Transfer:

Is done through purchase of various financial products

MISCONCEPTIONS ABOUT RISK MANAGEMENT

• Not only for big organizations

• Anti Insurance bias

• Risk management cannot make risk = 0