Financial Risk Management - 1763 Words

JONATHAN MUROMBA 2012178104 FINANCIAL RISK MANAGEMENT Management of Financial Institutions and The Banking Crisis Risk is uncertainty. The more risk one takes, the more he or she stands to lose or gain. One cannot expect high returns without taking substantial risks. The outcomes are thrown open to uncertainty. In general, when we talk about risk, we focus on financial risk. In financial terms, it is the risk that a company or individual could lose some or all of the original investment, possibly resulting in inadequate cash flow to meet financial obligations. All wise investments follow risk consideration. To be successful, every investor must be able to identify and understand the types of risk they face across their entire portfolio.†¦show more content†¦It had been widely known that problems with the banks in the US were due to the phenomenon of sub-prime lending for housing. Many of the loans had turned into toxic assets as borrowers failed to meet repayments. Similar to Northern Rock, the banks continued to give loans in this manner as they too chose to securitize their loans because this method of trading appeared so profitable. This was a highly successful mechanism to operate until the number of defaulters increased to the point where these assets began to turn illiquid. Investors started to avoid securities as it was now evident many were flawed. Moreover, Northern Rock in their quest for greater financial returns found securities that attractive they also invested in them. With trading slowing in the financial markets, many institutions began to react to the impending crisis by taking a more cautious approach to lending. In comparison Northern Rock were so focused on returning profits and generating growth that, at a time when monetary policy was tightening faster than expected, the bank had agreed to issue a tranche of mortgages at interest rates that were lower than those it had to eventually pay in the markets to finance them (The Economist, 2007, Lessons of the fall, 20/10/2007). In hindsight, this was a disastrous decision, which contributed to the impending shortfall in cash and ultimately the need to be bailed out. The managerial failings of NorthernShow MoreRelatedRisk Management : Financial Crisis1350 Words   |  6 PagesRisk management changed around the world since the bankruptcy of Enron in 2001 however, it was found by many that it was still not enough since the mortgage crisis of 2007 and 2008 took place after many risk management safeguards had already been put into place. One company emerged a leader among all others in what was failing in the mortgage servicing industry. The industry had sustained unprecedented losses and could be not able to deal with the ensuing financial meltdown that was about to occurRead MoreWhy Financial Risk Management Online917 Words   |  4 PagesHow to Find Financial Risk Management Online Financial Risk Management Ideas So as to make a genuine estate investment, you should gauge the risk involved. By managing financial risks, an organization can concentrate on its key activities as well as operations, instead of on forecasting rates of interest, exchange rates, and future commodity costs. In a practical manner, they are not capable of being a perfect market. Translation risks describe the changes within the value of the foreign assetRead MoreRisk Management Program For A Financial Institution . As1220 Words   |  5 PagesRisk Management Program for a Financial Institution As time has shown, financial institutions undertake an abundance of uncertainty causing unpredictable risk consequences. As a result, executives instill risk management programs to assist in managing the organizations risks so they align with the company’s goals. Commonly sought goals include legal and regulatory compliance, tolerable uncertainty, survival, business continuity, earnings stability, profitability and growth, social responsibilityRead MoreFinancial Aspect Of Climate Risk Management1040 Words   |  5 PagesFinancial Aspect of Climate Risk Management Climate change is a lethal and destructive force. In the recent past major climatic events like floods, tsunamis etc. have led to substantial destruction of wealth. Such events have highlighted the need of mechanisms for risk sharing of the losses and restoring the lost human and infrastructural capital. The climate change agreement declared on December 12, 2015 was one of the highlights of the year. It showcased the resolve of various nations in fightingRead MoreApplication Essay to The Financial Risk Management Program977 Words   |  4 Pagesgoal is to help a firm manage its financial risk by developing and applying effective risk management strategies. My long term goal is to lead an enterprise wide risk management program for a multi-national company. My experiences in IT Risk Services, Accounting Audit and Structured Finance Advisory Services at the Big Four firms helped shape my career goal and created a strong fascination for Financial Risk Management. These experiences taught me how risks affect organizations. I learnt howRead MoreFinancial Scandals Of Enron, Worldcom, And Tyco Occurred Risk Management1671 Words   |  7 PagesRisk Management After the major financial scandals of Enron, WorldCom, and Tyco occurred risk management became a high priority for companies. According to Brown, Steen, and Foreman (2009) risk management can be defined as the culture, processes, and structures that are directed towards taking advantage of potential opportunities while managing potential adverse effects† (p.547). To assist companies in the risk management process, companies are incorporating a risk management system, this helpsRead MoreCompany Risk Management : Pfizer Chief Financial Officer Frank D Amelio Said That Foreign Exchange Rates1105 Words   |  5 PagesIn January 2015, Pfizer Chief Financial Officer Frank D Amelio said that foreign exchange rates will hurt 2015 sales by $2.8 billion, or 17 cents a share, if the dollar remains at its current high levels. Pfizer operates like most MNCs by most likely utilizing hedging to reduce the volatility spawned by fluctuations in foreign exchange rates. But what you really need to understand is that there are risks involved in FX hedging itself. Most analysts tend to prefer long-term hedging over short-termRead MoreFinancial Risk Management8063 Words   |  33 Pages------------------------------------------------- Financial Risk Management using Derivatives; A case of selected financial institutions in Uganda ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- ------------------------------------------------- Abstract The RAP examines the management of financial risks using derivative instruments in the selected financial institutions in Uganda. Three key researchRead MoreReviews on Financial Risk Management3553 Words   |  15 PagesReview on Financial Risk Management Tianshu Hou FMRM 0811 Dec. 2011 〠Outline】 I. Introduction II. The definition and types of financial risk III. Risk management and the theoretical foundation IV. The process of financial risk management V. The challenges faced by the modern financial risk management theories 〠Abstract】 Financial risks are exposures of uncertainties for those participants in financial market. Financial risks can be divided into four categories: market risk, creditRead MoreDerivative Financial Instruments Employed For Risk Management948 Words   |  4 PagesDerivative Financial Instruments Employed for Risk Management Credit Risk Derivatives may be traded either via an exchange (exchange traded) or alternatively, privately negotiated contracts, which are generally alluded to as Over The Counter (OTC) derivatives. Exchange traded and OTC-cleared derivative contracts have downgraded Macquarie’s credit risk as their counterparty is a clearing house, accountable for the handling of risk management for their members to guarantee that the clearing house