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Essay / Research Paper Abstract
This 10 page paper considers why companies should manage financial risk. The paper considers this in terms of firm survival and also the way in which responsibilities exist to shareholders and other stakeholders. The paper considers how lack of financial risk management may create a scenario for failure, even where business is good. The paper also considers the role of opportunity risks and how this reflects in financial risk management. The bibliography cites 5 sources.
Page Count:
10 pages (~225 words per page)
File: TS14_TEmfrisk.rtf
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Unformatted sample text from the term paper:
of the company in the future. Therefore, it would make sense for risks to be managed where it is economically feasible and the risk warrants the risk management. When considering
why financial risk should be managed the key point is that the risk should only be managed where there is a potential risk that warrants the expenditure due to the
nature of the risk, either in likelihood or severity, or where it is cost effective to do so. The cost of management should always be less than the cost of
the consequences. The argument is therefore that financial risks should be managed where it cost effective or makes commercial sense to do so. Looking at this the first aspect
of any paper will need to be to determine what is meant by financial risk. In the very broadest definition this will be any risk that involves finance, from the
taking out of loans, protecting financial assets to the spending of the money. Moreover, when the structure of the company is remembered, the management are running the on behalf of
the shareholders, therefore, protecting the shareholder interests may also be seen as a justification of the use of risk management, along with the more obligations of protecting other stakeholder interests.
It also needs to be argued that in undertaking to manage risk, there is an inherent need to study the situation and understand the position in greater detail than may
be the case if risk management was not practised. There are two main types of financial risks; internal and external. External risks are those in the macro environment may
not be controlled by the company but is certainly one that will influence the company. Financial risks will include interest rate changes, currency fluctuations, general economic conditions that create uncertainly
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