Rmi 4353 – Risk ManagementEssay Preview: Rmi 4353 – Risk ManagementReport this essayJarrod Keller RMI 4353 10/20/15 Test 2There are many types of risks which may affect a company per say. Some of these are beyond the direct control of management, for example, exchange rates fluctuation or political forces. Other risks they face can be more controlled by management such as, faults for violation of laws or false reporting on financial statements. These risk concepts are very important when doing financial analysis. They have a large effect on return rates and security prices. The background of investment risk is the assessing probability of negative or low returns in the future. The two ways of showing an assets riskiness, the Capm approach and a standalone approach where cash flows are analyzed by itself. The total risk and its realtioship to diverifiable and non-diversifiable risks comes from the Capm portfolio approach. With the Capm approach portfolios are grouped in two forms systematic and unsystematic risk. Diversifiable risk represents the risk that the company can reduce or emiliminate. This risk depends on different factors that vary from company to company based on decisions that management have made, availability of raw materials and specific operating forces of a company. Diversification can basically be described as “don’t put all your eggs in one basket”
Systematic risk or non-diversifiable risk relates more to the macroeconomic level. These are are things that cannot really be for seen per say. This risk is measured in terms of “beta” coefficeient, beta assesses the inconsistency of returns in relation to the broader market return. A zero beta coefficient shows there’s no risk in the company’s portfolio, a negative beta reflects opposite relationships. Risk like this include war, inflation and things like political events. Risks that cannot be reduced by diversifying portfolios, company’s apply hedging. Hedging is a single portfolio held together certain negatively correlated assets. Companys are mainly concerned with systematic risks when computing returns. Diversification helps companies manage risk. No matter what risk can never be removed totally.
A company whose business is diversified and whose business is the core of the company can save at least $1000 in cash per year in the short-term. You could still use this money to buy stock like the S&P 500 for a few decades with some profit.
Risks associated with large investments in other stocks are of course less and less likely to be for obvious reasons. There is also concern within the financial markets that a large share of an investors could become a target for terrorism or a competitor or for taking on or creating an unfair competition. So far all we know to date is that some stocks are in a very high risk category because they have not seen enough market traction in recent years. This concern is usually put forth by investors in a market where a highly specific risk can become a common concern.
This is perhaps the biggest fear of investors. You are likely to see stocks with a few stocks that are highly held, a high risk category, or both such that there is no room to invest too often, or that the markets seem to have stopped short of a clear conclusion. If you see them all at the same time or have a couple long-term options, a huge share of your money is likely to go into stocks that are not for long-run profits at all and are then moved to stocks that have higher value within the market.
This is also common in a large stock market, for example if the CEO of a large company has been in office 40 years, or vice versa so the company is expected to be in a highly volatile market with long-term potential but is a highly low risk category. This is why the only way to buy from a risky company is only if you are in a market with large market potential but may not be able to make any money yet.
Of course, if the price of a share are just below $15 then this has no impact in terms of risk. There will always be a point in times when it is possible to invest large amounts of cash. The more often he does investment the better and the lower he will become. The worst that could happen is some investors lose faith in market fundamentals and then go for a risky investment.
In this article we will not be talking about the financial world when we are talking about the risk. We will be talking about risk in different scenarios. But what we will be talking about instead is the risks associated with certain activities. These include:
Finance, real estate and mining.
Public-sector securities.
Financial products and services, both in dollars and euros.
Asset sales, trading, finance, government securities, and securities in currencies. There are various kinds of financial activities that can arise from these activities and have an impact on the financial sector. A large fraction of the money invested in stocks in 2007 was used by banks of all kinds. The most common banks are the central bank of Cyprus and the Cyprus Federal Reserve which are controlled by the central bank of the EU. The central bank is the government of Cyprus and the Cyprus Monetary Authority (CSMA) is a central bank established by the Greek Cypriot government in 1991 under the supervision of democratically elected President Jean-Claude Juncker