Risk Management

Essay by mattockUniversity, Bachelor'sB, January 2012

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Table of Content


Executive Summary 04

Veiling Some Concepts regarding Risk 05

Why Should Firms Manage Risk? 06

An Example of Merrill Lynch 07

The Aims/Objectives of Risk Management 09

The Current Economic Downturn 14

Current RBS Failure and Risk Management 15

Recommendations 17

Conclusions 18

References 19

Executive Summary

As per a Chinese Proverb,

A smart man learns from his own mistakes,

A wise man learns from the mistakes of others,

And a fool never learns

From the last decade risk management is the most researched and exciting area in the financial industry as it elaborates how to minimize and avert the hazard of risk from the portfolios of different assets and from the operations of financial institutions. Regulators and depositors mainly emphasize the risk management and according to them risk management is an essential ingredient to enhance the value of shareholders and increase their level of confidence.

Risk management is the assessment of risks to mitigate, monitor and control the probability or impact on uncertain events. Risk management methods vary from industry to industry for instance it cannot be same for project management, industrial process and financial portfolios. As a management view point risk management is an important tool which is the used in decision making because it is systematic and well structured. For better utilization of risk management in management's decisions, risk analyst's reports must be based on the latest and best available information. The cause behind the mentioning of the Chinese proverb above is that risk management is the only tool which differentiates good management with bad. From a bank's standpoint, the term is usually used synonymously with specific uncertainty because the usage of statistics allows us to quantify the uncertainty which is called the measure of dispersion.

My objective is to define what risk...