PERSONAL FINANCIAL RISK MANAGEMENT Flashcards
defined in financial terms as the chance that an outcome or investment’s actual gains will differ from an expected outcome or return. Risk includes the possibility of losing some or all of an investment.
Risk
refers to some type of physical injury, damage to property, or absence of property or other assets.
LOSS
The likelihood of a risk actually resulting in a loss is called
PROBABILITY.
means you could lose something of personal value to you.
PERSONAL RISK
of identifying the potential downsides as well as the potential rewards of an investment.
RISK MANAGEMENT
potential downsides in any investment decision and deciding whether to accept the risks or take measures to mitigate them.
FINANCIAL RISK MANAGEMENT
is a serious kind of risk; it could jeopardize your future. With this type of risk, more than current income is threatened. You may lose your ability to earn in the future or assets you acquire in the future.
RISK OF FINANCIAL RESOURCES
– refers to a cost in terms of money. The loss can be big or small. Small possible losses should be assessed differently from large possible losses.
RISK OF FINANCIAL LOSS
– finding ways to change actions or events so that your chance for loss is less.
REDUCING RISKS
you stop the behavior or avoid the situation that leads to the risks.
AVOIDING RISKS
when you face substantial risk that you cannot or do not wish to reduce or avoid.
TRANSFERRING RISKS
taking responsibility for potential harm to oneself or others
ASSUMING RISKS
- Economic downturns or market crashes.
Systematic Risks.
- Job Loss.
- Disability.
Unsystematic Risks.
- Unexpected car repairs.
Short Term Risks.
- A healthcare costs in retirement.
Long Term Risks.
refers to the probability of a business losing value on its capital, i.e., liquid securities, factories, and equipment.
CAPITAL RISK
refers to the likelihood of the government of another nation defaulting on its financial commitments.
COUNTRY RISK
are about borrowers not being able to meet financial obligations. Specifically, meeting financial obligations when they become payable.
DEFAULT RISK
refers to the possibility that macroeconomic conditions will affect an investment.
ECONOMIC RISK
– exist in foreign currency transactions. Such risk is also possible when a foreign subsidiary of a company maintains financial statements in a different currency.
EXCHANGE RATE RISK
refers to any counter-party in an agreement that cannot fulfill its obligations. Specifically, through failure to pay for or deliver assets as specified in an agreement.
DELIVERY OR SETTLEMENT RISK –
– refers to the probability that the market interest rates will increase considerably. Specifically, significantly higher than the interest rate a party earned on investments such as bonds.
INTEREST RATE RISK
– refers to the probability that a company cannot meet its debt obligations. Specifically, whether it -can only meet its obligations if it incurs unacceptably large losses.
LIQUIDITY RISKS
– look at the likelihood of loss resulting from inadequate internal processes.
OPERATIONS RISK
the exercise of political power is the root cause of political risks in the world of international business. How leaders exercise political power determines whether government actions threaten a company’s value.
POLITICAL RISK
refers to the possibility that a borrower cannot borrow to repay current debts. Many lending arrangements include balloon payments at the end of the temptations.
REFINANCING RISK
refer to the likelihood that a party may cancel or stop a particular investment. Additionally, the investor might not be able to find a similarly attractive alternative investment.
REINVESTMENT RISK
this term focuses on the likelihood of a government defaulting on its sovereign debt or other financial obligation. It also refers to the risks investors run when investing in a specific country. These risks also exist when a party provides money to its government.
SOVEREIGN RISK
involve the forecasting and evaluation of financial and business risks. It also includes identifying and implementing procedures and measures to avoid or minimize their potential harms.
RISK MANAGEMENT
look at the likelihood that a party does not deliver a security or its value in money as agreed when the security was traded after the other party or parties have already delivered cash value or security as per the agreement.
SETTLEMENT RISK
