Join Jason Schenker for an in-depth discussion in this video Financial risk management solution costs: Liquidity and volatility, part of Finance Foundations: Risk Management.
- There are four factors that determine the cost…of a financial risk management solution.…Standardization.…Time.…Liquidity,…and volatility.…I've covered standardization and time in another video.…And they're pretty straightforward.…But liquidity and market volatility are two other…important parts of pricing…and they're a bit more complicated.…First, there's liquidity in the market,…or how easy it is to transact.…And there's market volatility,…which represents how big the swings are in a given market,…both up and down.…
So, let's talk a bit more about these two factors…and how they are related.…Markets that have more transactions…and more market participants are said to be more liquid.…And that makes it less expensive…to trade in those kinds of markets.…For example, US dollars are more liquid to trade…than British pounds.…And British pounds are more liquid than Polish zloty.…The more liquid the market,…the less expensive the relative cost…of the risk management solution.…
There are a couple reasons why less liquid markets…
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