Risk in financial management

Posted by admin on Mar 4, 2011

Learning what is a financial risk and how it can be decreased, is the basis to start the way of financial transactions that can generate large profits, but also very serious losses.

The risk is always a financial cost to the investor as it is based on a principle of uncertainty about the ultimate fate of the capital. To reduce the risk in our investments, and diversify, it is always advisable to go with an expert.

Financial risk has three elements:

1. Cost and availability of capital for investment.

2. The ability to meet cash needs in a planned way.

3. The provision to increase capital.

Here are the types of risks that arise in an investment:

Market risk.

Characterized by changes in prices of financial assets and liabilities (volatility) is measured through changes in the value of positions.

Credit risk.

It is established when unable to meet obligations associated with a decrease in price, experienced by the financial instrument when there is a possibility that the subscriber does not comply with their commitments.

Liquidity risk.

That inability to achieve cash flow obligations necessary, forcing a cash advance, with the probability of not being able to buy or sell assets or instruments taking into position required quantities, is the potential difficulty to perform a transaction quickly.

Legal risk.

Appears when the counter party does not exert legal or regulatory authority to conduct a transaction.

Transaction Risk.

Related single transaction made in foreign currency, imports, exports, capital and loans.

Translation risk.

It is created from the translation of foreign currency financial statements to the parent company anywhere in the world.

Economic risk.

It is the loss of competitive advantage of action.

The risk is related to the variability of financial markets and represents the potential loss of investment.

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