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Running Head: FINANCIAL RISK MANGEMENT

Joy Nissan

11/2/15

Risk management

Introduction: Financial Banks are very important in today’s economic it is a need for security it is first priority. It saves people hard earned money it is used for the future for the future. Bank’s are important to customers credit and reputation in the market. This risk management is required to confidential data and wrong doing. It is to save the credit and the trust of the customers. Therefore it is required by risk management to protect the customers rights. This paper will explain the financial risk management and the risk that the management factor’s such as credit, operational risk, and also commodity and increase the knowledge and understanding. This will help and increase the knowledge of future exploration of this topic.

Financial risk is a term including transaction from company loans that risk default.

The financial risk is a qualitative and utilized to solve issues as problems arise. The financial risk are specially focuses on how to use instruments to handle cost to exposure that is at risk. The financial risks not only identifies the risk that are potential but also it takes precautionary risk that reduce the risks.

If you make an investment by financial institution it itself is exposure to the risks internally and externally that is possible inflation and to the capital markets as well as bankruptcy and volatility as well as recession.

The Financial Risks and Analysis of Factors

The financial risks that pertains to industry that are the main aspects need to be considered, effectively and efficiently to resolve any order that ensures business success. The following will describe the three risk factors below.

Credit: This is basically related to the loss of the principal of the borrower’s loan that is repay to meet the contractual obligation of the bank. Its is credit that whenever a borrower is expecting to repay a debit. It is considered a credit risk that issuers or borrowers of debt obligation.

This shows the banks inability to return funds to the depositors also termed as risk to the credit. In most cases the insolvent banks shows that inability to return funds to the depositors also termed as a credit risk. In most cases the government grants bankruptcy and government grants.

It also gives protection to the customers for the business and insurances in the form of the mortgage and insurance of guarantees of third parties.

Commodity

It is substance that is grains, and metals that is interchangeable with other products, in which a investors buy or sells usually through futures contracts. Risk is actually reason exchange trading the basic agricultural products. It is also a product that trade on exchange for foreign currencies and instruments and indexes.

This is a risk that basically referring to the uncertainties in the future. Its affects the size and the income of financial income because the prices fluctuation of the commodities and the currency movements. This financial invest in gold, energy resources and other increasing financial returns that prices increases or profits for investment. It is a business commodities due to certainty of financial risks.

Operational Risks

Is a form that summarizes the risk a company or firm undertakes within a given a field or industry. It is a risk that that is not inherent it is a financial and systematic risk and include the risk of break down, in people and systems.

The Operational risk is a link with the change in value and a inadequate of failed processes value that caused or failed internal processes. The operational risk is generally linked with the risk in any value is caused by inadequate or failed internal process. The operational risk is linked from external events this includes legal affects that come from internal processes. The risk is linked with people and systems as well from external events, The risks are bank related to fraud security and privacy protection, that harm the public credits in case of misuses of personal data. It is also known as management of specific old process that a banking systems has for priority to prevent fraud and maintain the internal controls with the reduce the errors in transaction processing.

Interest Rate Risk is an investment that value will change due to a absolute level of interest rate it is also a yield curve or any other interest rate. Changes can affect inversely securities and can be reduced by diversifying with a fixed income securities or hedging known as a interest rate swap.

It affects the value of a bond and also directly than a stock and its major risk to all bondholders. An interest rate increases and decreases since investors are able to switch to the other investments that reflect t higher interest rate. If a bond is 5% and the interest rate decreases the bondholder will receive a fixed rate it is known as a relative fixed rate in the market. This is offering a lowering rate of return as result of decrease in rate.

The effect of the Market is a fundamental principle bond that market prices are generally going up and move in the opposite directions. The fixed prices are bonds that fall. The interest rate risk is phenomenon when interest rate rises and bonds are fixed.

Credit has been a effect on the real of economic activity since 1930s. Its not surprising that crisis has also produced a lot of markets to lose large amount of money it is unprecedented and volatility.

Foreign exchange risk

is a risk that exists in exchange rate it is a risk that investors will close out in long or short position in on foreign currency due to a loss of adverse. Money must be converted in currency to make certain investments this will allow the change in currency exchange rate to cause that investments value to either decrease or increase when sold it will converted back to its original currency.

The currency price is a term that another country uses for its term. The exchange rate has two components the domestic currency and the foreign currency. An exchange rate that has a domestic currency is two currency is known as a cross currency or cross rate. The base currency is a counter currency.

Most exchange rates are US dollars the base currency and the other currencies are counter currency they are to four places the decimal except currency quotations involving the Japanese yen and the two decimal place after. Example The US dollar is $1= C.1050 The base currency is the US dollar the currency is the Canadian dollar This would comprise the direct quotation in Canadian dollar .

C$1= US 0.9050=90.50 cents. In here the currency is based by the currency of Canadian dollar when US dollar this would be indirect of the Canadian dollar in Canada. The exchange rate floating on fixed. While the floating exchange rate the market are force in major nations to fix their domestic currencies to widely accept currency of the US

Credit is a important factor in any one life’s everyone needs it without it you can buy anything. So It is very important to pay your credit card bills on time and not fall behind. Credit is a trust to a party that provides money . This is resource provided by financial or goods or services to customer credit.

It does not have to involve money it’s a credit a concept that is a barter between goods and exchange of services. Credit is a financial capital movement that normally depends on either credit or equity transfers. Credit is the trust which allows the first party to pay or arrange at later time.

Movement of the financial capital are normally on either credit or equity transfer. Credit is in turn dependent on the creditworthiness of the funds. The types of credit are

Credit [def. 2c]. (n.d.). In Merriam Webster Online. Retrieved 5 March 2015, from [1]

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