Financial Risk Management

Financial risk management in the world of finance is all about mitigating the risk involved in any decision the fund or investment manager makes regarding an investment or trading.

Risk is the uncertain future effect of an outcome from an investment decision, hence risk management is the process of preventing or reducing such an effect, while risk assessment is the identification of such events before they occur and taking the required actions or precautions to best handle such an events if they are to occur and here the risk response process takes place, for such processes to take place the management team should develop some risk defense strategies based on risk management resource allocation to help the company achieve it’s goals and strategies with value creation.

Types of risk involves operational risk which arises from the companies operation processes and personnel working within the company’s operation process. Compliance risk which is concerned about the failure of the company to comply with certain rules and regulations. Investment risk of market conditions affecting the company’s investment projects, credit risk and liquidity to sufficiently buy and sell assets. And finally the VAR (Value At Risk) which is the minimum loss expected for a certain period of time.

Through well diversified and full-fledged risk management education and training one can be better educated on risk management issues and techniques and have a wider understanding of risk within his/her work environment, because everyone is a risk manager even if his/her job title doesn’t involve the word “Risk” he/she experience risk management decisions at every part of the work done within the company or the organization.

By Ahmed Refaie, CEO, G.P.I. Global Partners Investments Limited, and Author