Financial Risk Management
Financial risk management is a
process that entails companies setting up guidelines to define their policy on
accepting financial risk. Individuals who work in financial risk management do
not make investment decisions for a company. Instead, those individuals create
the guidelines that the risk-takers must follow when analyzing investments they
are considering for the company. Financial risk management is defined as the
practices and procedures that a company uses to optimize the amount of risk it
handles with its financial interests. Senior leaders of a company that
practices financial risk management should produce a written policy on
financial risks they are willing to accept and follow that policy. They should
also monitor the risks taken, and release reports on the results of these risks
to help with analyzing them.
The main objective of financial
risk management is to minimize potential losses arising from unexpected changes
in currency rates, credit, commodities, and equities. Price volatility risk
faced is known as market risk. Market risks contained in various forms.
Although the focus to price volatility or level, accounting management needs to
consider other risks. Liquidity risk arises because not all financial risk management
products can be traded freely. Market discontinuities refers to the risk that
the market does not always lead to price changes gradually. Credit risk is the
possibility that the counterparty to the contract risk management can not meet
its obligations. Regulatory risk is the risk arising from the public
authorization prohibits the use of a financial product for a particular
purpose. Tax risk is the risk that certain hedging transactions can not obtain
the desired tax treatment. Accounting risk is the chance that a hedging
transaction can not be recorded as part of the transaction to be hedged.
The principles of risk management are:
1. Transparency
This principle requires that all
the potential risks involved in an activity, in particular transactions,
disclosed publicly. Risks hidden / concealed will be the largest source of the
problem and, by definition, can not be managed properly.
2. Accurate
Measurements
This principle represents the
science of the concept of Risk Management, and requires continuous investment
to various techniques and tools that will be used as a condition of strong Risk
Management process.
3. Qualified
Timely Information
This principle will also determine
the measurement accuracy and the quality of the decisions taken. Conversely
non-fulfillment of this principle can bring management on a risky decision
fatal.
4. Diversification
Risk Management System are either
put the concept of diversification as something noteworthy. This requires
constant monitoring pattern and consistent. The assumption is that the
concentration of (risk) may occur at any time in line with various changes that
occur in the world.
5. Independence
Based on the principle of
independence, the existence of an independent Risk Management group
increasingly regarded as a necessity. This principle does not just talk about
the authority and the level of responsibility of the group Risk Management and
group / other units within the company, but also about about the company's
vision and quality of the interrelation between the Risk Management group /
other units, and also inter-group / unit carrying transaction by taking certain
risks.
6. Discipline
Decision Patterns
Portions of science in Risk
Management concept indeed has contributed much to the Risk Management
capabilities in measuring risk, but the quality of the decision still depends
on how management decides how best to use tools / specific techniques and
understand the limitations of the tools / techniques such.
7. Policy
This principle requires that the objectives and
strategy of an enterprise risk management should be formulated in a Policy,
Manual & Procedure are clear. Policy should clearly describe and define the
company Risk Management philosophy and provide the overall approach used and
the organization of the process of taking risks. The main purpose of it is to
bring clarity to the process of risk management, for both internally and to
external parties such as regulators and analysts.
Importance of Financial Risk Management:
1. Growth
of risk management services that quickly shows that dapatmeningkatkan
management company value by controlling the financial risks.
2. Their
great expectations from investors other interested parties, so that financial
managers were able to identify and manage the risks facing the market actively.
The role of accounting in the management of
financial risk:
The role of management accounting
assist in the identification of market exposure, quantify the balance
associated with alternative risk response strategies, measure the potential
that companies face a particular risk, noting certain hedging products and
evaluate the effectiveness of hedging programs.
1. Market
Risk Identification
The basic framework is useful for
identifying different types of market risks that could potentially be referred
to as risk mapping. This framework begins with observations on the relationship
of various market risk to a trigger value of a company and its competitors. And
usually referred to as risk mapping cube. The term refers to the trigger value
of financial condition and outposts major financial operating performance that
affect the value of a company. Market risk includes foreign exchange risk and
interest rate and commodity price risks and eukuitas. The third dimension of
the cube mapping risks, see the possible relationship between market risk and
trigger values for each of the company's major competitors.
2. Balancing
quantifying
Another role played by accountants
in the risk management process includes the quantification process offsets
associated with alternative risk response strategies. Accountants should
quantify the benefits of protected assessed and compared to the cost plus the
opportunity cost in the form of lost profits derived from speculation and
market movements
3. Risk
Management in the World Floating Exchange Rates
The risk of foreign exchange
(forex) is one of the most common forms of risk and will be faced by
multinational companies. In a world of floating exchange rates, risk management
includes:
a. anticipation
of exchange rate movements,
b. measurement
of foreign exchange risk faced by the company,
c. designing
a strategy for adequate protection, and
d.
manufacture of internal risk management
control.
Sumber :
Bessis, Joel (1998) Risk Management in Banking, John Wiley & Sons Ltd., West Sussex, England.
The Risk Metrics Group (1998), Exploring Risk and Managing Risk.
The Risk Metrics Group (1998), Exploring Risk and Managing Risk.
