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

Settlement of the index options contract, Settlement of the Index Options C...

Settlement of the Index Options Contract In the index options contract, the premium to be paid or to be received is calculated for each CM after netting the positions at the en

Eurocurrency, Eurocurrency A currency on deposit outside its country o...

Eurocurrency A currency on deposit outside its country of source. Such deposits are well known as external currencies, international currencies or xenocurrencies.

What do you mean by working capital, Q. What do you mean by Working Capital...

Q. What do you mean by Working Capital? Meaning of Working Capital:- Working capital management is a significant aspect of financial management. In business money is necessar

Financial bootstrapping, Briefly describe the major differences between a s...

Briefly describe the major differences between a sole proprietorship and a corporation. Under which form would you choose for a business, and why? Describe the meaning of financi

Duration, Now that we have an understanding about price volatility ...

Now that we have an understanding about price volatility characteristics of a bond, let us turn to the duration/convexity approach, which is an alternative

Evaluate earnings per share, This question tested earnings per share and P/...

This question tested earnings per share and P/E ratio. The widely held of the marks were for calculations and a key test was the distinction between what transactions affect basic

Illustrate the operating leverage, Q. Illustrate the Operating Leverage? ...

Q. Illustrate the Operating Leverage? Operating Leverage: - The operating leverage perhaps defined as the tendency of the operating profit to differ disproportional with sales.

Capm model and financial leverage beta , 1. Capital Asset Pricing Model an...

1. Capital Asset Pricing Model and Multinational Corporations Why do some critics say the CAPM model is not appropriate in an international setting? Please explain a way that

Computing forward rate, We can compute any forward rate using the spo...

We can compute any forward rate using the spot rate. When we tell 3 years forward rate 4 years from now, there are two elements to consider. One is the length of

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