Learn about and see examples of direct and indirect risks, including financial market, operational, and counterparty risks. Learn why indirect risks are important and what the differences between indirect vendor and indirect competitor risks are.
- Sometimes it's not the devil you know,…but it's the devil you don't.…Direct financial market risks…are the devils that corporations usually know very well…while indirect risks can be the devils they don't,…but those indirect risks need to be recognized, measured,…and monitored just as closely…as direct risks a company faces.…You need to be able to identify direct…and indirect financial market risks…including risks from currencies and physical commodities…and you need to know that these risks can originate…from a vendor or a competitor.…
Direct risks are those that a company sees day to day…both physical and financial.…Let's consider a US-based auto manufacturer.…As a direct financial risk,…a US-based auto manufacturer selling goods into Europe…is certain to be aware that a stronger Euro…would help the company sell more cars into Europe,…but a weaker Euro would hurt sales.…That's a direct risk, a direct currency risk,…that the company sees everyday.…As a direct physical commodity risk,…consider that this auto manufacturer…
Jason Schenker of Prestige Economics discusses nine types of corporate risk, including financial and nonfinancial risks. He explains the difference between direct risks that companies face constantly, as well as indirect risks that usually come from vendors, competitors, and counterparties. Then he covers how risks are typically resolved, either by elimination (divestiture or acquisition), transfer (hedging or insuring), offset (creating a natural hedge), or ownership (keeping the exposure). Finally, he reviews how corporations can actively measure and monitor risk by appointing dedicated risk managers, officers, and committees.
- Understanding risk in corporations
- Risk management process
- Nine different types of corporate risks
- Financial market risks
- Direct and indirect risks
- Risk management solutions
- How corporations actively manage risk