Financial risk management is a significant aspect of any successful enterprise. It is a practice that can guide the company to mitigate the risks associated with the financial market and generate strategies to optimize profit earning opportunities. Primarily, there are four types of financial risks that are addressed by financial risk management
- Market Risk
Market Risk is a type of risk that occurs due to price fluctuations within the financial market.
- Credit Risk
It arises when a company fails to fulfil its obligations towards its creditors or counterparties.
- Liquid Risks
Liquid risks occur when a company is unable to execute its transactions efficiently, either due to inadequate sellers or insufficient buyers.
- Operational Risks
This type of financial risk arises out of operational failures due to the lack of control or ineffective management.
Benefits of Financial Risk Management for Companies
1. Risk Management Planning
Identifying financial risk factors allows the company to develop strategies for eliminating those risks in the initial stages itself. For instance, if you as a company are able to identify a particular period of the financial year in which the revenue is low, you can develop cost-cutting strategies accordingly to compensate for the low returns during that period.
Furthermore, during the same period, you can increase your marketing and promotional campaigns in order to increase revenue generating opportunities.
2. Maximizing Business Opportunities
Along with determining the risk factors, financial risk management also emphasizes on predicting opportunities. This allows businesses to benefit from good investment scenarios and work towards maximizing their financial benefits.
This not only aids the company but also offers profit-making opportunities for shareholders. Identifying these opportunities allows the company to stay ahead in the financial market and obtain a competitive edge over its competition.
3. Facilitating Business Growth
Analyzing future trends and growth prospects are other imperative aspects of financial risk management. A business with sound financial risk management in place is able to plan in order to remain proactive in the market. Subsequently, it is able to predict what is likely to occur in the financial market and develop a strategy to grow notwithstanding the risks.
4. Financial Risk Manager
A Financial Risk Manager (FRM) is a professional designation certified by the Global Association Risk Professionals (GARP), that is responsible for the financial health of an enterprise. The primary function of the FRM includes raising funds, allocating the funds, profit planning, and understanding capital markets.
Why Obtain FRM Certification?
Along with expanding and strengthening your skillset, enrolling in a financial risk management course allows you to:-
- Exhibit strong and comprehensive knowledge of financial risk concepts that sets you apart from your peers.
- Be a part of the elite and well-connected community of highly-valued professionals in the field.
- Increase your credibility amongst employers, peers, and clients.
By identifying risks as well as opportunities of the market, advanced financial management helps a company stay ahead of its competition. It allows managers to develop effective strategies that reduce the chances of losses and maximize profit-earning opportunities, thereby ensuring the continued growth of the company.