Financial Risk Management
Financial Risk Management
Financial risk management (FRM) is the process of identifying, analyzing, and mitigating financial risks that an organization faces in its operations. These risks can affect an organization’s financial health, profitability and ability to achieve its financial goals. Financial risk management involves various strategies and techniques to protect the organization from potential adverse financial events.
Types of Financial Risks:
- Market Risk
- Credit Risk
- Liquidity Risk
- Operational Risk
- Counterparty Risk
- Foreign Exchange Risk
- Interest Rate Risk
- Commodity Price Risk
Types of Financial Risks:
- Risk Identification
- Risk Assessment
- Risk Mitigation
- Monitoring and Reporting
- Compliance and Governance
- Scenario Analysis and Stress Testing
FAQ
The main types of financial risks include market risk (such as interest rate risk and market volatility), credit risk, liquidity risk, operational risk, and legal and regulatory risk.
Financial risk management is essential for protecting an organization’s financial health, ensuring it can meet its financial obligations, and maintaining the trust of stakeholders, including investors and creditors.
Hedging involves using financial instruments (such as options, futures, or swaps) to offset potential losses from adverse price movements in assets or liabilities. It aims to reduce risk exposure.