Financial markets are the forums in which buyers and sellers of financial assets such as stocks and bonds, and commodities such as grains, oil and gold, meet. Because there are uncertainties of...

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Running Header: Financial Market
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Financial Market
TABLE OF CONTENTS
1. Introduction ..3
2. Business Risk ..3
3. Financial Risk ..5
4. Measurement of risk and Financial Risk management ..7
5. Global Initiatives in Financial Risk Management ..12
6. Conclusion ..13
7. References ..14
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Financial Market
Introduction:
Risk means the future uncertainty in the deviation from the expected earnings or the outcomes. It
helps to measure the uncertainty which the investor is very much eager to take in return of which
he expects a gain from that investment.
The management of the risk depends on understanding and then managing that risks which the
Company faces while working on the attainment of the objectives. These kinds of risks will be
threats to a company like bankruptcy or heavy losses. It is traditionally linked with the managing
of risks of the events which may damage companies. The companies face various risks. And it
includes the risks which are associated with the following:-
a) Business environment
) Laws and regulations
c) Operational efficiency
D) Reputation of organization
E) Financial Risks
Department for Risk management exists in almost all the large companies but smaller companies
lacks in having these departments.
Business Risk
1. Strategic Risk
A successful company requires comprehensive and a well thought out plans. But it is
a true fact that as time and things changes, the best plans seems outdated. This risk is
known as the strategic risk. In this risk the strategies of the companies becomes
ineffective and it struggles in achieving its goals.
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The reason behind strategic risk can be any technological changes or any powerful
new entrant seem to be a tough competitor in market, fluctuations in demands of the
customers , spikes in costs of the raw materials, or any changes on large scale.
2. Compliance Risk
Compliance risk refers to the compliance with the necessary rules, regulations, laws
which are applicable to a business but regular changes in laws creates a risk of
complying with them as and when they change with some additional requirements. .
And also as and when a business grows or expands itself, the additional rules
ecomes applicable to it which were not required before. Compliance risk applies not
only when a business expands geographically but also when it enters into a new
product line.
3. Operational Risk
Operational risk refers to an unanticipated collapse in your firm's day-to-day
activities. The failure could be related to any technical issue like outage or something
caused by one of the individual of the firm.
In various cases, operational risk could have more than one reason for failure. For
example, an employee writing off the wrong cheque amount could cause various
issues.
4. Financial Risk
Most of the risks faced by a company cause a financial impact in terms of lost
evenue and extra cost. Financial risk mainly consists of the outflow and inflow of
cash in the firm and the possibility of any sudden loss. Financial risk is even more
increased when the business is done on international level.
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5. Reputational Risk
There are numerous types of business, but there is a common thing in all of them that
is their reputation. It plays an important role in the success and failure of a business.
If reputation of a business is damaged, then there will be loss of revenue with an
immediate effect because the customers will become cautious in doing business with
you. And other possible effects are demoralization of the workforce and they may
leave. Another affect is the replacements will be very hard to be found as almost all
willing candidates have heard about your poor reputation and will not be interested in
joining the same. The terms offered by Suppliers will be less favorable. People like
Advertisers, other partners or the sponsors may end their links with the business.
Reputational risk may be in the form of criticism of the products and the services,
major lawsuit, negative publicity of company and its workforce, emba
assing
product recall, and in today‟s scenario only few seconds are needed to damage the
eputation of another person or the firm. Online reviews of the products and negative
tweets slowly build a grave for an organization.
Financial Risks:
Financial risk is related to financial operations of the business. It involves financial loss risk and
aims at times risk of financial gain too. It involves credit risks, rate of interest risks, cu
ency
isks, interest rate risks, liquidity risks, financing risks and cash flow risks. The severity of these
isks varies from one to another organization. Any firm having international operations is
exposed more to cu
ency risks as compared to firms that operate nationally. Similarly, a bank
will be exposed more to the credit risks in comparison to other firms. Financial risks create
possibility of the losses that arises from failure in achieving the financial goals. The financial
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isks mentioned above are many times interconnected to each other. Like for example, the
exchange rates and the interest rates are strongly linked as it can be seen when the managers are
working upon the risk management systems. Following are the description of the various types
of the financial risks:
1. Market risks:
It is defined as those financial risks which arise due to the losses because of the change in
the future market rates or prices. The changes in the price will relate to the interest or the
foreign exchange movements in rates and also include rates of...