Understanding Risk in Corporation
- 1. A Lynda.com Tutorial Summary Prepared by: Mitchell Krcelic Linkedin Profile 02/12/19
- 2. Risk Management is essential in any type of business. What happened in the past would stay in the past. Predicting the future before it is too late. Without Risk Management business would not stand for long. Example (Enron) Bottom Line
- 4. Risk management is crucial in a company as it will either help avoid downside risks and focus more on the upside risks. There are Financial and Non-Financial risks. Understanding Risk in Cooptation
- 5. There are a six steps in a risk management process: identifying risks measuring your risks, owning your risks, addressing your risk, implementing your risk management solution monitoring your risk management solutions. Risk Management Process
- 6. Following the six steps of the risk management process is important, as this can create a ripple effect if not done properly each step. The risk management process helps isolate the problem your trying to solve. Just like an math problem with an formula to follow. The Importance of a Risk Management Process
- 8. The four Nonfinancial Risks are: 1. Operational 2. Strategic 3. Reputation 4. Legal and Regulatory The nonfinancial risk involves in the whole structure and policy of the company. Four Nonfinancial Risks
- 9. The five financial corporate risks are: 1. Business 2. Market 3. Credit 4. Liquidity 5. Counterparty Financial corporate risks involves more how the company creates loss and profits. Five Financial Corporate Risks
- 10. Interest rates, currencies, and commodity prices can hurt the company’s bottom line as these three factors decreases or increases. Understanding how interest rate and prices affect the companies bottom line shows how valuable you are. Overview of Financial Market Risks
- 11. Direct and Indirect risks can be derived from a vendor. Direct risks are something that you can see physical and financial meaning, you are able to predict what might happen. Indirect risks are currency and commodity’s you never know when an economy might crash or a country adds on tariffs to certain goods. Direct and Indirect Risks
- 13. the central bank, OPEC and the weather which could have a positive or negative effect upon companies profits. Owning and selling risks. Financial Risk Management Solutions
- 14. When a call option is above the striking price it is called “In the Money” and similary if the put option is below the striking price it is also called “In the Money”. Financial Solutions: Options
- 15. Increase in interest rates going up is bad for a business’s cash flows. Interest rate swaps provides an exchange between two parties. Financial Solutions: Interest Rates Swap
- 16. Forward or commodity future contracts are used mainly for hedging and applies to agricultural, energy and metal. This is mainly use for buyer and seller’s assets. Financial Solutions: Futures and Forwards
- 17. Four types of factors that impact the price of solution: 1. Standardization 2. Time 3. Liquidity 4. Market Volatility All of these factors are related to the market such as product, timing or geography. Understanding how the market works and the risks behind it could help with companies cash flows in the future. Financial Risk Management Solution Costs: Standardization and Time.
- 18. Less liquid in markets means more expensive due to higher implied volatility which ultimately impacts the pricing models in hedging. Financial Risk Management Solution Costs: Liquidity and Volatility
- 19. Nonfinancial Solutions are natural hedges, physical agreements, acquisitions and diversities. These types of management solutions are not financial based, instead more operational. Nonfinancial Solutions
- 21. A professional risk manager’s goal should be monitor, measure and actively manage risks in a corporation. Professionals in Risk Management
- 22. Quantitative data are used for prediction or government based numbers and qualitative data are media sources or human derived data. Quantitative and Qualitative Data Collection for Risk Management