Financial Risk Management: Key Tasks
What are the key tasks included in the financial risk management process?
Choose the three correct answers from the options provided:
- Designing strategic plans aligned with organisational goals.
- Asset-to-Capital ratio.
- Evaluating an organisation's financial risks.
- Dealing with the risks which arise due to financial markets.
Answer:
The financial risk management process includes evaluating financial risks, dealing with risks from financial markets, and calculating the Asset-to-Capital ratio.
Financial risk management is a crucial process for companies to effectively manage and mitigate potential risks to their financial health. There are several key tasks involved in this process:
Evaluating an organisation's financial risks
One of the primary tasks in financial risk management is to assess and identify the various financial risks that an organization may face. This involves analyzing factors such as market volatility, economic conditions, and industry-specific risks.
Dealing with the risks which arise due to financial markets
Financial markets can be unpredictable and prone to sudden fluctuations. It is essential for companies to have strategies in place to mitigate risks associated with market changes, currency fluctuations, interest rate changes, and other market-related factors.
Calculating the Asset-to-Capital ratio
The Asset-to-Capital ratio is a key metric used in financial risk management to assess a company's financial health and leverage levels. By calculating this ratio, companies can understand their capital structure and make informed decisions to manage their risk exposure.
By effectively performing these tasks, organizations can minimize the impact of financial risks and ensure their long-term financial stability and growth.