What is a company risk?

Company risk concerns the obligations and dangers facing corporations. Risk management is a set of procedures that minimize the risks and costs for businesses. The task of separating business risk management is to identify potential sources of problems, analyze them and take the necessary steps to avoid losses.

The term "risk management" once applied only to physical threats such as theft, fire, employees' injuries and car accidents. By the end of the 20th century, this term also applied to financial risks such as interest rates, exchange rates and electronic trade. These financial risks are the most additional type for corporations.

There are several steps in each risk management process. The department must identify and measure exposure to loss, select alternatives for this loss, implement solutions and monitor the results of their solution. The aim of the risk management team is to protect and eventually improve the value of the company.

For example, business has places in California that are subject to earthlingsSinging while those in Florida are most likely to encounter hurricanes. The risk management team identifies this physical risks and purchases the relevant insurance for these situations. Insurance of any kind actually controls the risk associated with different scenarios.

with corporations is the biggest problem. As with standard insurance contracts for physical damage, certain financial risks can be transferred to other parties. Derivatives are the primary way to transfer business risk.

The derivative is a financial contract that is value based on something else. These other things can be shares and commodities, interest and exchange courses or even weather, if possible. The three main types of derivatives used by business risk administrators are futures, possibilities and swaps.

The future is an agreement to buy an asset to the date for a specific price. Options give the buyer the possibility but nIkoli obligation, purchase this asset according to the date and price. Swaps are agreements on the exchange of cash flow before a certain date. All these values ​​in the company and some provide support in case of problems.

In 2008, mainly credit swaps received great control after the bubble rupture in previous years. During a bubble to housing, creditors with a subprime mortgage transformed the risk associated with their loans into floors. Businesses that purchased the risk were then obliged to pay these creditors' debts. These companies, which hold the risk, eventually paid significantly more money than they had ever considered. The calculated risk they had undergone did not pay off, while the teams for driving the risk of original creditors played safely.

Company risk is particularly important in difficult times in the economy. They will do all that is needed to avoid other risks, which in some cases can contribute to a reductionLoan availability and less total expenditure.