Finance- maybe Risk Management Essay Example | Topics and Well Written Essays - 2250 words

Finance- maybe Risk Management - Essay Example As a result, it is imperative to ensure financial risks are acknowledged and managed properly (What is Financial Risk Management?, n.d., p. 1). We would build up a positive hypothesis of the hedging behavior of value optimizing corporations. Hedging is treated by companies simply as a part of the organization’s financing decisions. The paper pays attention to the impact of the hedging strategy on the organization’s investment decisions. Our theory provides answer to the question- why some organizations hedge and others do not. The goal of hedging in risk management is to decrease the fundamental volatility of cash flows and curtail the likelihood of large losses. The current study intends to discuss this issue. Risk provides the foundation for chance (Boyle, Coleman and Li, n.d., p. 1). Risk is the probability of losses resulting from events such as alterations in market prices. Events with a low likelihood of occurrence, but those causing a high loss, are predominantly troublesome since they are often not predicted (What is Financial Risk Management?, n.d., p. 1-2). Financial risk arises through innumerable transactions of economic nature, comprising of sales and purchases, ventures and loans, and a variety of other dealing activities. It can occur as a result of legal deals, new schemes, mergers and acquisitions, debt financing, the power constituent of costs, or through the activities of supervision, stakeholders, contenders, foreign governments, or climate (What is Financial Risk Management?, n.d., p. 2). Approaches for risk management frequently occupy derivatives. Financial derivatives are a sort of hazard management tool (Risk Management and Financial Derivatives, n.d, p. 1). Derivatives are traded extensively among financial organizations and on structured exchanges. The value of derivatives agreements, such as futures, forwards, options, and swaps, is based on the cost of the fundamental asset. Derivatives’