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Fundamental Risk Concepts
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Flashcards
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Liquidity Risk
The risk that an entity will not be able to meet its financial obligations as they fall due because it cannot liquidate assets or obtain funding.
Systemic Risk
The risk of collapse of an entire financial system or entire market, due to the interlinkage and interdependencies of financial institutions and markets.
Strategic Risk
The risk that arises from adverse business decisions or the failure to implement appropriate business strategies.
Residual Risk
The risk that remains after all efforts to identify and eliminate risks have been made.
Risk Tolerance
The degree of variability in investment returns that an individual or organization is willing to withstand in their investment portfolio.
Risk Avoidance
Taking actions to remove a risk entirely, often by discontinuing the activities that create the risk.
Risk Concentration
The presence of a high level of exposure to a single risk or a group of related risks, potentially threatening the financial stability of an institution or system.
Risk Appetite
The amount and type of risk that an organization is willing to take in order to meet their strategic objectives.
Political Risk
The risk an investment's returns could suffer because of political instability or changes in a country's government policies.
Inherent Risk
The risk present in a situation or environment in absence of any actions to alter that situation.
Foreign Exchange Risk
The risk of a financial transaction's value changing due to changes in currency exchange rates.
Risk Assessment
The overall process or method where you identify risks and risk factors, assess their potential effects, and create plans to deal with them.
Risk Transfer
Shifting the potential risk exposure to another party, typically through insurance or outsourcing.
Risk Mitigation
The process of developing options and actions to enhance opportunities and reduce threats to project objectives.
Credit Risk
The risk of loss arising from a borrower who does not make payments as promised.
Risk Management
The process of identifying, assessing, and controlling threats to an organization's capital and earnings.
Market Risk
The risk of losses in positions arising from movements in market prices.
Operational Risk
The risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events.
Hedging
The process of making an investment to reduce the risk of adverse price movements in an asset, typically by taking an offsetting position in a related security.
Country Risk
The risk of investing in a country; the possibility of losing money because of instability or changes in a country's environment.
Compliance Risk
The risk of legal or regulatory sanctions, financial loss, or loss to reputation an organization may suffer as a result of its failure to comply with laws, regulations, rules, related self-regulatory organization standards, and codes of conduct.
Value at Risk (VaR)
A statistical technique used to measure and quantify the level of financial risk within a firm, portfolio, or position over a specific time frame.
Risk
The possibility of loss or any other adverse event with potential to interfere with the organization's operational or financial success.
Interest Rate Risk
The possibility of a reduction in the value of a security or a portfolio of securities resulting from a rise in interest rates.
Reputation Risk
The risk of loss resulting from damages to a firm's reputation, incurring in lost revenue, increased operating, capital or regulatory costs, or destruction of shareholder value.
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