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Running Head: RISK MANAGEMENT                            1
RISK MANAGEMENT                                    6
RISK MANAGEMENT
TYPES OF RISKS
Table of Contents
Classification of Risk    3
Risk Management    3
Risk management techniques used by financial managers    3
References    6
Classification of Risk
Risks can be referred to as a probability of happening of an event, which may lead to a loss. Risk can be classified into two categories namely internal and external risk. According to McNeil, Frey and Embrechts (2015), internal risk are risks, which arise within the organization and the exposure to the same can be reduce up to a great extent. On the other hand, external risks are risks that arise from outside the organization and the firm has little control over such risks. External risk includes change in macro-economic policies, market depression, negative trade relations with foreign countries and others.
Risk Management
The concept of risk management has developed in the recent past. In the earlier times, not focus was put on risk management. After the great recession of 2008-2009, companies have started focusing highly on managing the risks. Financial management techniques that help in managing the risk are insurance, hedging, creating an emergency fund, diversifying the investments, regular risk assessment, managing the cash flow effectively.
Risk management professionals are hired by almost all the companies to reduce the exposure to risk. As noted by Chan and Wong (2015), insurance and hedging are the most effective ways to deal with external risks. However developing internal control measures can be helpful in reducing the internal risks. Mitigating the risk wholly is not possible however; reducing the same is possible by a great extent.
Risk management techniques used by financial managers
The financial management techniques to reduce risk are:
Insurance:
The concept of insurance has helped in reducing...