Friday, 5 April 2013

Financial Risk Management

Financial risk in an organization is chance that the result of an act or event could bring up unfavorable impacts. Such outcomes could either result in a direct loss or may result in annoyance of limitations on organization’s capability to assemble its business objectives.
Risk Management is a regulation at the hub of every financial institution and covers all the actions that have an effect on its risk profile. It involves classification, measurement, observing and calculating risks to ensure that
a) The persons who handle risks clearly realize it.
b) The organization’s Risk experience is within the limits established by Board of Directors.
c) Risk taking Decisions are in line with the business strategy and objectives set by BOD.
d) The expected payoffs compensate for the risks taken
e ) Risk taking decisions are explicit and clear.
f) Sufficient capital as a buffer is available to take risk
Risk management as generally supposed does not mean minimizing risk; rather the goal of risk management is to optimize risk-return trade -off. Despite the fact that many organizations are in the business of taking risk, it should be known that an organization need not connect in business in a manner that needlessly compels risk upon it: nor it should soak up risk that can be transferred to other Introduction.