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Financial Risk Management

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Financial Risk Management Risk is the chance of encountering loss Risk is the possibility of something unpleasant happening Risk means uncertainty of future cash flows. Risk Manager’s job involves in ensuring that RISK is maintained at the desired level. In all cases where risk is imperative, increasing the predictive ability also forms part of risk management Different meanings of risk Pure risk and Speculative risk Pure risks are those in which the outcome tends to be a loss with no possibi
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  Financial Risk Management Risk is the chance of encountering loss Risk is the possibility of something unpleasant happeningRisk means uncertainty of future cash flows. Risk Manager’s job involves in ensuring that RISK  is maintained at the desired level.In all cases where risk is imperative, increasing the predictive ability also forms part of risk management  Different meanings of risk  Pure risk and Speculative risk  Pure risks are those in which the outcome tends to be a loss with no possibility of gain. Speculative risks are those in which there is a possibility of loss or profit.Ex: Risk of fire in a warehouse results in a pure risk while therisk involved in dealing in the stock market is a speculativerisk, because one may either gain or lose. While it is possible to insure pure risk, speculative risks can’t  be insured.  Acceptable Risks and Non-Acceptable Risks Certain risks are acceptable without any prevention beingtaken since the potential loss may be minimal.Certain risks are major and non  –  acceptable too. The mgmt. Must find ways to reduce, avoid or transfer the risk. Eg: A major financial loss of Rs.1 crore due to fire in thewarehouse is a non-acceptable risk.  Static risks and Dynamic risks: There are various risks that depend on changes in theeconomic, political, social and other scenarios. Such risks areknown as dynamic risks.Eg: Speculative risks, Business risks.Risks that do not depend on various scenarios are known asstatic risks. Pure risk is a type of static risk.
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