Financial Risk Management Essay

1021 words - 5 pages

Brief Introduction of Financial Risk Management


Financial risk management is an interdiscipline with various researching subfields including the studies of mathematical methods to maximum the profits, quantitative analysis of financial databases and investment decisions. In other words, it is aimed to bridge the gap between mathematical theories and practical financial analysing tools (Nawrocki 1999). It could also be defined as“Living with the possibility that future events may cause adverse effects” (Kloman 1999). Risk and profit are always an integral. The variety of risks including portfolio risk, credit risk and liquidity risk became a ...view middle of the document...

Thousands of banks, funds and other financial institutes faced bankrupt and had been forced to close up by their supervisory authorities. To tide over difficulties, a great number of small financial organizations had to look for a larger and more powerful co-operators, for example, HSBC, Barclays and UBS, then merged with them (Lybeck 2011, ix). That was the trigger of stimulating the development of risk management. Financial industry started to hire more experts and employees in terms to enhance the analysing functions. Moreover, finding a practical approach to optimize the profits and control the risks at same time became a core issue of global financial conferences.

A wide range of people and organizations could be the beneficiaries of risk controlling. From a retired to the largest financial institution, all the society should think of ways to alleviate the effects of potential risk in marketing and trading. Basically, for detailed explanation, person and institutions could be divided into three groups to analyse due to different scale. The first group is the collection of individuals who focus on the personal finance management. The content of personal finance management is balancing the income and consumption, planning the pension, investing on financial products of low risk. Modern perspective on personal finance management emphasised the protection of property which includes dealing the unexpected events and enhancing the stability of personal wealth, for example, suffering a traffic accident or global financial crisis. The core of personal finance management is controlling the risk. The main part of second group consists of the saving banks or commercial banks. Those banks collected money from public deposit and invested on specific project which was also called loan. Over 50% potential risk of commercial banking activities located at credit risk. For instance, the enterprises who borrowed funds from bank refused or lost the capability to repay the loan. Other losses might happen in intentional .swindles and illegal trades. Last but not least, the third group primarily is constituted by investment banks and international funds. Enormous fund flow is the distinct feature of those financial institutions. Compared to other two groups, this group takes more responsibilities to the whole society and therefore they need to have a credible both quantitative and...

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