The financial risk management industry is growing at a rapid pace. The global financial risk management market was to be worth $11.9 billion in 2019 and is expected to reach $14.4 billion by 2024, growing at a CAGR of 5.0% over the forecast period.
Financial Risk Management is a comprehensive discipline that involves the identification and measurement of risks. The development of appropriate risk management strategies and policies. Their implementation through the use of internal controls, information systems, and procedures.
What is Financial Risk Management?
Financial risk management is the process of identifying, assessing, and controlling financial risks. A financial risk occurs when there is uncertainty about the size of a loss concerning an investment’s value. The primary purpose of financial risk management is to ensure that a company can continue operations and meet its financial obligations. It also includes monitoring the market value of assets held by a firm. To detect signs of trouble before they become full-blown crises. This allows firms to sell assets at more favourable prices. By reducing potential losses, or buy assets at lower prices if they expect prices will arise later on.
Financial risks are typically divided into three categories:
The risk that fair value or future cash flows will fluctuate because of changes in market prices or interest rates.
Credit risk refers to the possibility that a borrower will not repay a loan, or will default on some other obligation such as an insurance contract or a futures contract. Belás, Mišanková, Schönfeld, and Gavurová, 2017).
The risk that losses from day-to-day operations will occur because of human error or fraud by employees, contractors, or third parties.
Factors that Influence Financial Risk Profile of Businesses
The financial risk profile is unique to your business and is influenced by many factors, including:
- The nature of your business – Is it a new venture or an established one? What is its size? How much capital is invested in it? What are its plans for expansion?
- The type of products or services you provide – These can be high-value or low-value items. They may be complex products such as pharmaceuticals. They may be simple products such as foodstuffs. They may require specialist skills to produce, or they may not. For example: if you own a dissertation writing company, your main service would be thesis/dissertation writing for students of any field. From finance dissertation help to MBA dissertation, this may require expert writers of every field to provide A-one writing service to your clients.
- Your customers – Who are they? How much do they spend with you? Do they pay promptly? Are they loyal?
- Your suppliers – Who do you buy from? Are these companies reliable and trustworthy? Do they offer good value for money? Do their prices fluctuate frequently? Can this affect your business if you rely on them for supplies?
What does Financial Risk Management teaches you?
- To have an opportunity to learn about financial instruments, products, markets, and institutions.
- To understand the importance of financial markets in an economy.
- To understand the role of banks in an economy as well as their functions in the financial intermediation process.
- To learn how to manage risk effectively using financial instruments such as futures contracts, options contracts, swap agreements, etc.
Reasons Why One Should Study Financial Risk Management
Financial risk management is a very important part of business and investment. It helps in determining the probability of loss or gain as well as the expected return on investment. Financial risk management is an ongoing process in which different strategies are used to reduce and manage risks.
There are many reasons why one should study financial risk management. The following are some of the reasons:
It Helps To Understand Financial Markets
Financial risk management helps people to understand the financial markets better. This is because when you know how risks work, you can make better decisions.It will help you get more profit from your investments. For example, if you have a property that is on a lease, then you can take out insurance against fire damage so that if there happens any damage due to fire, then it will be covered by an insurance company with no cost incurred by you.
It Helps In Making Good Decisions
Financial risk management helps people make good decisions. When it comes to investments since it helps in understanding how risks work and how they affect market prices. In other words, it prepares investors for what might happen. When there is an economic crisis or when there is an inflationary period or depression in the economy. Such factors which might impact negatively on their investment portfolio or wealth creation plans.
The Job Market Is Booming
The financial industry has been booming for the past few years, and it’s not just because of Wall Street bonuses. As people become more knowledgeable about their finances. They need help managing their money. This growth has translated into a need for more qualified professionals to manage these clients’ money. According to a recent report from the Bureau of Labor Statistics (BLS), employment in finance is expected to grow by 7% through 2022, which is much faster than average job growth across all industries (6%).
Better Career Prospects
For any organization, a qualified expert in financial risk management is required. Many businesses employ experts or teams to estimate risk, design mitigation techniques and identify exposure. You may work as a risk expert in sales, trade, marketing, finance, and many other industries. While taking advantage of the rising need for certified experts in the industry.
Few businesses completely take into account the numerous financial risks that geopolitics entails. A risk analysis should take into account a variety of factors, including access to natural resources, proximity to conflict-ridden nations, restrictions on international interactions, corruption, and local culture. Only by properly comprehending this context a firm can take advantage of the unique financial circumstances that each location offers.
Careers in Financial Risk Management
Some of the great career opportunities in Financial Risk Management are discussed below,
These experts in financial risk study investment portfolios and assess the risk associated by using their analytical skills and understanding of global marketplaces for trade and currencies. The forecast future losses and offer advice on how to reduce risk by diversifying investments, trading currencies, and using other investing tactics (BE-UK.2022).
Operational Risk Manager
These risk managers look at how a company is conducted and look for prospective areas where there might be financial, legal, or social harm. The objective is to reduce risk as much as possible and compensate for damages.
Credit Risk Manager
These specialists examine and evaluate the financial histories to establish if a person or business is a safe applicant for a loan or not. They assess financial information, including balance sheets and income statements, to gauge the degree of default risk and compute financial ratios to facilitate comparisons across lenders.
Market Risk Manager
These financial risk management professionals do market research and offer businesses or investors a thorough market evaluation using their understanding of a particular industry or sector. Following that, the business or investor utilizes this data to decide on investments and new business opportunities.
The financial risk management industry is growing at a rapid pace. It is no secret that the financial industry is one of the most lucrative and exciting career paths. However, it is also one of the most challenging fields to enter. Many students find it interesting while some consider it difficult. Just like some people prefer to buy dissertation because of its time consumption and difficulty level, some prefer to do it their selves. So, it depends on you whether you want to choose financial risk management as your career path or not. But if you choose it as your major then some great advantages would surely benefit you in the future!