Business English >> Advanced Vocabulary >> Managing Financial Risk
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Advanced Vocabulary
Managing Financial Risk - Answer Sheet
In financial risk management, companies employ various strategies to minimise potential losses. One common approach is diversification, where businesses invest in a variety of assets to reduce exposure to any single risk. Another strategy is hedging, which involves using financial instruments like options and futures to limit losses from adverse market movements. Companies must also manage their exposure to credit risk, which is the risk that borrowers will fail to repay loans. During times of economic uncertainty, market volatility can increase, making it crucial for businesses to stay agile.
To ensure the ability to meet short-term obligations, maintaining liquidity is critical. Furthermore, businesses must always adhere to government regulations and industry standards to remain in compliance with the law. Some companies use financial products such as derivatives to hedge against unpredictable risks. Additionally, ensuring transparency in financial reporting can boost investor confidence and improve risk management.
