Plan for Risk Management in Finance
- Goal
to recognize, evaluate, and reduce financial risks in order to preserve capital, maintain stability, and accomplish strategic objectives.
- Range
This risk management strategy is applicable to financial operations, lending, investments, and compliance.
- Important Financial Risks and Strategies for Mitigation
Risk Category Description, Impact Probability, and Mitigation Technique
Risk to the Market loss as a result of changes in the market (stocks, interest rates, FIX High to Medium Diversification, stop-loss setting, and hedging with options and futures
Risk to Credit Risk of counter party or borrower default High-Medium Credit default swaps (CDS), limit exposure, and credit scoring
Risk to Liquidity Unable to swiftly turn assets into cash Medium Medium Keep cash on hand and make investments in liquid assets.
Risk in Operations Failures of internal processes (fraud, system error)Medium Low to Medium Cybersecurity, staff training, audits, and internal controls
Regulatory/Compliance Risk High Low Violation of financial rules or regulations Regular audits, compliance training, and legal reviews
Interest Rate Risk: Variations in interest rates that impact profits Medium High interest rate swaps and matching between assets and liabilities - Methodology for Risk Assessment
Quantitative Tools: Monte Carlo Simulations, Stress Testing, and Value at Risk (VaR)
Qualitative Tools: Scenario analysis and risk rating matrices
- Observation and Evaluation
continuous evaluation of the performance of the portfolio
Risk reporting to stakeholders every three months
Systems for tracking market and credit exposure in real time
- Duties and Positions
Role Accountability
CRO/Risk Manager Overall policy enforcement and risk supervision
Daily risk monitoring and plan modification by an investment manager
Officer of Compliance Assure compliance with laws and regulations.
Independent evaluation and assurance by an internal auditor - Emergency Preparedness
Plans for emergency liquidity
Protocols for crisis communication
Data and trading backup systems
Author: Mohamed Yasin
