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Financial Risk Management

Types of risk include market, credit, liquidity and operational

Although we may not realize it, we assess risk every day of our lives. Is it safe to cross the street? Should I eat a healthy salad or throw caution to the wind and eat a cheeseburger for lunch? Can I postpone getting new brakes for the car? To make decisions, we analyze our options and make assessments based on possible benefits versus potential harm.

Decision-making in the business world is similar, but risk analysis takes place on a much larger scale, under more serious circumstances. If a company makes a bad choice, it risks losing enormous sums of money, its market share, and hundreds or even thousands of jobs, depending on the size of the organization. High stakes spur both large and small businesses to invest significant time and energy on financial risk management.

The goal, however, is not to avoid risks. Taking chances is vital to the health of any enterprise because it is the only way to grow. Taking a chance on global expansion and launching new products can be necessary gambles if a company wants continued prosperity. Yet, while risks are necessary, it is essential to minimize the potential fallout mistakes can cause.

Types of Risk

Executives who oversee financial risk management must generally consider four main categories: market risk, credit risk, liquidity risk and operational risk.

In terms of market risk, good financial risk management means understanding the marketplace and anticipating challenges from your competitors. Understanding an enterprise’s credit risk begins with an accurate measurement of your company’s capital and its debt capacity. Similarly, a risk manager should know how readily a business can liquefy its assets and what policy or legal issues may arise if a company moves in a new direction.

Those who work in financial risk management must be able to identify potential vulnerabilities and establish systems that will protect the company from possible financial, legal and operational threats.

Honing Your Financial Acumen

Few career paths in business are as exciting — or as challenging — as financial risk management. Which risks are worth taking? Which risks should you avoid? It can be tremendously satisfying to play a pivotal role in making these decisions.

Earning an MBA in finance is one of the best ways to secure the right skills and financial knowledge to manage a company’s ventures. The demand for executives with superior financial skills is great in a global marketplace where competition is fierce and companies must take on new challenges to thrive.

To meet the needs of the marketplace, many universities offer an MBA in finance. For example, Texas A&M University-Corpus Christi’s MBA in finance offers graduates in-depth instruction in areas such as multinational finance, investment, financial markets and institutions, and personal financial planning. The program helps students develop the skills they need to guide organizations through the challenges of the future.

Designed for professionals who want to advance their careers and increase their earning potential, the MBA in finance is available as an online degree. Busy professionals can enjoy the flexibility of completing coursework from home without interrupting their personal and professional lives.

Being involved in financial risk management can be a rewarding career for those with the right skills and the vision to face fiscal challenges with confidence.

Learn more about the TAMUCC online MBA in Finance program.


Sources:

Investopedia: Tips for Managing Your Company’s Risk

PM Times: Seven Crucial Steps to Effective Project Risk Management

Investopedia: What Are the Major Categories of Financial Risk for a Company?


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