Financial risk management in companies.

in Project HOPE6 months ago

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Until the end of the 1980s, the most widely used corporate finance manuals of the time hardly dealt with the subject of risk management; therefore, there was no major interest in risk management in companies. However, since this decade, risk management has become one of the most important responsibilities of treasury managers in large companies around the world. However, when observing the changes that the Venezuelan financial sector has undergone due to the insertion into the new economic order, it is imperative to assume the study of financial risk in today's companies.

In this sense, companies must foresee potential risk situations, having full knowledge of the different indicators that may affect the economic and business conditions, which expose them to uncertainty. Likewise, the globalization of the market economy has diminished the stability and security of the financial business, multiplying the risks faced by the different organizations, which implies the possibility of not being able to cover the financial costs.

From the above, it can be deduced that finances are the most powerful factor in the economy of organizations, but at the same time being volatile, due to the constant mobility of financial flows, thus undergoing changes faster than the productive facilities themselves. In this context, Lara (2007) states that financial risk management corresponds firstly to the identification of these risks, secondly to their quantification and control through the establishment of tolerance limits and, finally, to the modification or cancellation of financial risks by reducing exposure to them.

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Indeed, maintaining a latent financial risk, without any concern for its measurement and control, can seriously compromise a company's liquidity, as well as cause uncertainty associated with the return on investment and reinvestment. It can also lead us to underestimate the inflationary level by which the company may be affected, together with the behavior of interest rates prevailing in the capital markets. On the other hand, fluctuations in exchange rates may influence the cost of capital attributed to borrowings.

Therefore, these causes of the ignorance towards the risk that can affect the finances of a company due to the lack of knowledge of the same, either by lack of preparation of the people in charge of the area, naivety in the exposure of the items before the risk and the lack of interest in the subject.

Reference Consulted

  • Lara De Haro, A. (2007) Financial Risk Measurement and Control. Editorial Limusa, Mexico..

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