Financial risk management and its types

One of most important finance Related problem is risk. Losing or gaining of financial wealth, health or social status termed as risk. It is always uncertain and differs from each person because some of them may take more risk than other. Risk occurs in various fields such as economic, health, Insurance, Business management, Informational Technology, Finance and human factors. Economic risk occurs due to sudden rise in the cost of raw material, natural calamities and new competitor with best outcome. Risk in human life will affect the interior and exterior personality of a person. Two types of risk occur in workplace known as inherent risk and incidental risk. Without any expectation suddenly occurred risk in business is incidental risk. Profit of business gets low in inherent risk.

In financial risk, the investment expectation of return (Cash flow) not as same that we expected. Some types of financial risks are Credit risk, Foreign investment risk, Asset-backed risk, Market risk, Commodity-price risk, Interest rate risk, Systematic and Unsystematic risk, Country risk, Political risk, Market risk, Currency risk, Operational risk and Liquidity risk. Asset-backed risk is a type of risk creates changes in assets (one or more) which include term change and interest rate. Credit risk is the risk taken by an investor who lend money from outside, lost everything including principal and can’t able to return money to lender. Foreign investment risk arises when deals business with other country currencies. It includes sudden changes in cost because of economic conflict, nationalization and valuation. In Liquidity risk, assets cannot be used properly to get enough profit. It divided in to two types as Funding liquidity and Asset liquidity. Commodity-price risk arises when there is a sudden increase in raw materials in world markets. Two types of commodity-price risk is direct and indirect commodity exposure. Interest rate risk is a risk which changes in interest rates according to the change in investment’s value. Get help from a professional to know the financial terms or you can refer financial dictionaries.

Systematic risk will affect the huge assets and can’t able to defend beside it. Affects against the assets is less in unsystematic risk which also known as specific risk. Country risk will take by country itself against the dishonour commitments in finance. Sudden changes in the financial policies of a country’s government leads to political risk. That’s why most of the countries prefer foreign investments. Market risk is another type of risk which creates changes in stock’s price. Currency risk arises if a change in currency of the country affects investments. According to operation of business operational risk occurs.

 

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