GOBankingRates works with many financial advertisers to showcase their products and services to our audiences.
These brands compensate us to advertise their products in ads across our site.
This compensation may impact how and where products appear on this site.
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information.
you’re able to read more about oureditorial guidelinesand our products and servicesreview methodology.
20 YearsHelping You Live Richer
Reviewedby Experts
Trusted byMillions of Readers
Risk management plays a non-negotiable role in finance.
Factors such as market swings, interest rate fluctuations and bad debts can all threatenfinancial goalsand assets.
What Is Risk Management in Finance?
Risk management in finance is the process of identifying, assessing and controlling risks.
These risks could affect financial outcomes and lead to potential losses for financial institutions, companies or investors.
Main Types of Financial Risks
Heres a look at the three main types of financial risks.
Market Risk
Market risk comes from the uncertainty related to anyinvestment decision.
Lenders decide to grant loans based on a borrowers ability to make future payments.
To determine the risk, lenders assess the borrowers finances, including credit history, income and debt-to-income ratio.
Liquidity Risk
Liquidity risk happens when there isnt enough cash on hand to meet financial obligations.
For a bank, liquidity risk could mean funding mortgage loans with customer deposits.
For example,mortgage loansare considered long-term loans and customers can withdraw their deposits at any time.
However, if customers withdraw their deposits suddenly, this could create liquidity risk for the bank.
If one area takes a hit, others can help balance it out.
For businesses, this means not relying on just one or two income sources and preparing for potential losses.
These tools also can help assess the likelihood of borrowers defaulting on loans by analyzing their financial history.
Data Analytics
Banks use data to make smarter decisions.
Takeaway
Finding and working with a financial advisor is a great idea.
A financial advisor will help keep track of your finances and assist you in attaining your financial goals.
Get to know your Financial Advisor options today for Free!
you’re able to learn more about GOBankingRates processes and standards in oureditorial policy.
Share This Article:
