Basic methods of risk management, Financial Management

Assignment Help:

Q. Basic Methods of Risk Management?

Risk is inherent in business and hence there is no escape from the risk for a businessman. However, he may face this problem with greater confidence if he adopts a scientific approach by dealing with risk. Risk management may, therefore, be defined as adoption of a scientific approach to the problem dealing with risk faced by a business firm or an individual. broadly, there are five methods in general for risk management.

1) Avoidance of Risk: A business firm can avoid risk by not accepting any assignment or any transaction which involves any type of risk whatsoever. This will naturally mean a very low volume of business activities and losing of too many profitable activities.

2) Prevention of Risk: In case of this method, the business avoids risk by taking appropriate steps for prevention of business risk or avoiding loss, such steps include adaptation of safely programmers, installation of burglar alarm and extinguisher, employment of night security guard, arranging for medical care and disposal of waste material etc.

3) Retention of Risk: In case of this method, the organization voluntarily accepts the risk since either the risk is insignificant or its acceptance will be cheaper as compared to avoiding it.

4) Transfer of Risk: In case of this method, risk is transferred to some other person or organization. In other words, under this method, a person who is subject to risk may induce another person to assume the risk. Some of the techniques used for transfer of risk are hedging, sub-contracting, getting surety bonds, entering into indemnity contracts etc.

5) Insurance: This is done by creating a common fund out of the contribution (known as premium) from several persons who are equally exposed to the same loss. Fund so created is used for compensating the persons who might have suffered financial loss on account of the risks insured against.


Related Discussions:- Basic methods of risk management

Define factors for investing in the emerging stock market, As an investor, ...

As an investor, what factors would you consider before investing in the emerging stock market of a developing country? Answer:  An investor in emerging market stocks requirements

Brigham, how do legal consideration affect a firms credit policy

how do legal consideration affect a firms credit policy

Valuing debt securities, Valuing Debt Securities Securities which promi...

Valuing Debt Securities Securities which promise to pay its investors a stated rate of interest and return principal amount at the maturity date are known as debt securities.

Global bonds, These are bonds which are offered within the euro marke...

These are bonds which are offered within the euro market and several other markets simultaneously. Unlike Eurobonds, global bonds can be issued in the same curren

What are the merits of budgets?, Question 1 Describe the process involved ...

Question 1 Describe the process involved in accounting. What are the objectives of accounting? Question 2 Briefly explain the role of management accounting. Also expalin the

Ratio analysis and company valuation, As an investment advisor, you have be...

As an investment advisor, you have been approached by a group of professional investors (probably who already have a well-diversified portfolio). They are considering investing in

Explain cash flow budget and npv in lkl plc, LKL PLC Project VZ (...

LKL PLC Project VZ (a) Cash Flow budget and NPV WORKINGS

Example to show the companys current gearing, Q. Example to show the compan...

Q. Example to show the companys current gearing? The company's current gearing 2000/ 8500 × 100 = 23.53% The current gearing position is on the low side particularly wh

Determine the method of credit rating, Determine the method of Credit Ratin...

Determine the method of Credit Rating It is obligatory for the issuing companies to get credit rating done on debt securities issues. Credit ratings are also required for Comme

Show the advantages of irr method, Q. Show the Advantages of IRR Method? ...

Q. Show the Advantages of IRR Method? Advantages of IRR Method:- (i) Similar to the other DCF methods IRR methods as well take into consideration the time value of money.

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd