The Need for Risk Management
Corporations are in the business of managing risk.The risk should be monitored carefully because of their potential for damage.Types of risks facing corporations and that financial risks have increased sharply over thelast 30 years.The need to hedge against these risks had led to the exponential growth of derivativesmarkets.
1. are very efficient instruments to hedge against, or speculate on, financial risks.2. Without proper controls, however, they have the potential for creating large losses.3. They should be used only with good risk management.
Summary measure of market risk.
1.1 Financial RisksRisk
The volatility of unexpected outcomes:1. Value of assets2. Equity3. Earnings
corporation assumes willingly to:1. create a
and2. add to
value for shareholders
judicious exposure to business risk is a core competency of all businessactivity.includes:1.
a. investment decisionsb. product-development choicesc. marketing strategiesd. company´s organizational structure