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Financial Risk Management

This document discusses financial risk management at Havells. It defines financial risk and explains that financial risk management involves identifying sources of risk, measuring them, and developing plans to address risks. The document outlines different types of financial risks like credit risk, market risk, liquidity risk and foreign exchange risk. It states that financial risk management strategies help companies manage risks associated with financial markets and should evolve with the organization. Specifically, it provides details on credit risk, which is the risk of loss from a borrower not repaying a loan.

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153 views3 pages

Financial Risk Management

This document discusses financial risk management at Havells. It defines financial risk and explains that financial risk management involves identifying sources of risk, measuring them, and developing plans to address risks. The document outlines different types of financial risks like credit risk, market risk, liquidity risk and foreign exchange risk. It states that financial risk management strategies help companies manage risks associated with financial markets and should evolve with the organization. Specifically, it provides details on credit risk, which is the risk of loss from a borrower not repaying a loan.

Uploaded by

MayankTayal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Financial Risk Management

Objectives:
The main objective of this research is to find how Financial Risks are managed at

Havells.
Knowing the management strategies adopted by them.
Knowing their payment modes both in terms of debtors and creditors.
Comparing the desired strategies with that of the adopted strategies.
To understand the Standard Operating Procedures of HIL in Risk Management and

Governance, Treasury, Finance and Accounts and Credit Control departments.


To analyze and interpret five years historical financial statements.

What is a Risk?
Risk provides the basis for opportunity. The chance that an investments actual return will be
different than expected. Risk includes the possibility of losing some or all of the original
investment. Different versions of risk are usually measured by calculating the standard
deviation of the historical returns or average investments of a specific investment. A high
standard deviation indicates a high degree of risk.
Many companies now allocate large amounts of money and time in developing risk
management strategies to help manage risks associated with their business and investment
dealings. A key component of the risk management process is risk assessment, which
involves the determination of the risks surrounding a business or investment.
Types of risks:
1. Business risks
2. Market-related risks
3. Consumer - related risks
Business risks: The possibility that a company will have lower than anticipated profits, or
that it will experience a loss rather than a profit. Business risk is influenced by numerous
factors, including sales volume, per-unit price, input costs, competition, overall economic
climate and government regulations. A company with a higher business risk should choose a
capital structure that has a lower debt ratio to ensure that it can meet its financial obligations
at all times.
Business risks further include four kinds of risks namely:
a. Operational risk
b. Technological risk
c. Financial risk

d. Social risk
a. Operational risk: Risks which interrupt the production cycle, such as mechanical
failure, failure of technical processes, late delivery of supplies and services
b. (ii)Technological risks: Risks associated with lack of adequate technology, such as
hatchery propagation, or lack of technical information and expertise
c. Financial risks: Risks due to government financial policies, use and dependence on
government policy instruments, terms of credit, changes in operational costs
d. Social risks: Risks due to actions of special interest groups, such as environmentalists
and conservationists
2. Market-related risks: Risks due to loss of product quality, lack of market information,
actions of third party (the marketing middleman)
3. Consumer-related risks: Risks due to loss of consumer appeal, health regulations,
actions of third party (the consumer)
In this study we will be majorly talking about the Financial Risks and its management.

Financial Risk Management:


I.

Financial Risk:

The economic climate and markets can be affected very quickly by changes in exchange
rates, interest rates, and commodity prices. Counter- parties can rapidly become problematic.
As a result, it is important to ensure financial risks are identified and managed appropriately.
Preparation is a key component of risk management.
Exposure to financial markets affects most organizations, either directly or indirectly. When
an organization has financial market exposure, there is a possibility of loss but also an
opportunity for gain or profit. Financial market exposure may provide strategic or
competitive benefits.
Financial risk arises through countless transactions of a financial nature, including sales and
purchases, investments and loans, and various other business activities. It can arise as a result
of legal transactions, new projects, mergers and acquisitions, debt financing, the energy
component of costs, or through the activities of management, stakeholders, competitors,
foreign governments.

II.

Financial Risk Management:

Financial risk management is the practice of economic value in firm by using financial
instruments to manage exposure to risk, particularly credit risk and market risk. Other types
include Foreign exchange, Shape, Volatility, Sector, Liquidity, Inflation risks, etc. Similar to

general risk management financial risk management requires identifying its sources,
measuring it, and plans to address them. Financial risk management can be qualitative and
quantitative Organizations manage financial risk using a variety of strategies and products. It
is important to understand how these products and strategies work to reduce risk within the
context of the organizations risk tolerance and objectives.
The process of financial risk management comprises strategies that enable an organization to
manage the risks associated with financial markets. Risk management is a dynamic process
that should evolve with an organization and its business. It involves and impacts many parts
of an organization including treasury, sales, marketing, legal, tax, commodity, and corporate
finance.

A. Credit risk:
The risk of loss of principal or loss of a financial reward stemming from a borrower's
failure to repay a loan or otherwise meet a contractual obligation. Credit risk arises
whenever a borrower is expecting to use future cash flows to pay a current debt.
Investors are compensated for assuming credit risk by way of interest payments from
the borrower or issuer of a debt obligation. Credit risk is closely tied to the potential
return of an investment, the most notable being that the yields on bonds correlate
strongly to their perceived credit risk.

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