Theme: Financial risk management Plan: Types of financial risks. Method of managing the risks.

Financial risk is an umbrella term for multiple( многократный ) types of risk associated with financing, including financial transactions that include company loans in risk of default. Risk is a term often used to imply downside risk, meaning the uncertainty of a return and the potential for financial lossriskfinancingfinancial transactionsdefaultdownside risk

Financial Risk is one of the major concerns of every business across fields and geographies. Before understanding the techniques to control risk and perform risk management, it is very important to realize what risk is and what the types of risks are.

Risk and Types of Risks: Risk can be referred as the chances(возможность) of having an unexpected (неожиданно)or negative outcome(результат). Any action or activity that leads to loss of any type can be termed as risk. There are different types of risks that a firm might face and needs to overcome ( преодолеть ). Widely, risks can be classified into three types: Business Risk, Non-Business Risk and Financial Risk.Business Risk

Business Risk: These types of risks are taken by business enterprises themselves in order to maximize shareholder value and profits. As for example: Companies undertake high cost risks in marketing to launch new product in order to gain higher sales. Non- Business Risk: These types of risks are not under the control of firms. Risks that arise out of political and economic imbalances can be termed as non-business risk. Financial Risk: Financial Risk as the term suggests is the risk that involves financial loss to firms. Financial risk generally arises due to instability and losses in the financial market caused by movements in stock prices, currencies, interest rates and more.Financial Risk

Types of Financial Risks: Financial risk is one of the high-priority risk types for every business. Financial risk can be classified into various types such as Market Risk, Credit Risk, Liquidity Risk, Operational Risk and Legal Risk.

Market Risk: This type of risk arises due to movement in prices of financial instrument. Market risk can be classified as Directional Risk and Non - Directional Risk. Directional risk is caused due to movement in stock price, interest rates and more. Non- Directional risk on the other hand can be volatility risks.

Credit Risk: This type of risk arises when one fails to fulfill( выполнить ) their obligations towards their counter parties. Credit risk can be classified into Sovereign Risk and Settlement Risk. Sovereign risk usually arises due to difficult foreign exchange policies. Settlement risk on the other hand arises when one party makes the payment while the other party fails to fulfill the obligations. Credit risk

Liquidity Risk: This type of risk arises out of inability to execute transactions. Liquidity risk can be classified into Asset Liquidity Risk and Funding Liquidity Risk. Asset Liquidity risk arises either due to insufficient buyers or insufficient sellers against sell orders and buy orders respectively.

Operational Risk: This type of risk arises out of operational failures such as mismanagement or technical failures. Operational risk can be classified into Fraud Risk and Model Risk. Fraud risk arises due to lack of controls and Model risk arises due to incorrect model application.

Legal Risk: This type of financial risk arises out of legal constraints such as lawsuits. Whenever a company needs to face financial loses out of legal proceedings, it is legal risk.

RISK MANAGEMENT STEPS AND TOOLS The risk management steps are: 1. Establishing goals and context (i.e. the risk environment), 2. Identifying risks, 3. Analysing the identified risks, 4. Assessing or evaluating the risks, 5. Treating or managing the risks, 6. Monitoring and reviewing the risks and the risk environment regularly, and 7. Continuously communicating, consulting with stakeholders and reporting.

2.1 Establish goals and context The purpose of this stage of planning enables to understand the environment in which the respective organization operates, that means to thoroughly understand the external environment and the internal culture of the organization. The analysis is undertaken through: − establishing the strategic, organizational and risk management context of the organization, − identifying the constraints and opportunities of the operating environment The establishment of the context and culture is undertak Identify the risks

Key questions that may assist your identification of risks include: − For us to achieve our goals, when, where, why, and how are risks likely to occur? − What are the risks associated with achieving each of our priorities? − What are the risks of not achieving these priorities? − Who might be involved (for example, suppliers, contractors, stakeholders)?

The use of the following tools and techniques may further assist the identification of risks: − Examples of possible risk sources, − Checklist of possible business risks and fraud risks, − Typical risks in stages of the procurement process, − Scenario planning as a risk assessment tool, − Process mapping, and − Documentation, relevant audit reports, program evaluations and / or research reports.