Definition and classification of financial risks


Under investment in the financial market should be understood investment, certain costs in the securities market, carried out with the purpose of obtaining income, profits. Of course investments are divided into:

1) direct - investments in real assets (production), which is involved in the management of the investor;

2) portfolio (financial) - investments in stocks, bonds and other securities giving the right to receive income from the property.

3) real - investments in land, real estate, machinery and equipment, spare parts, etc. (Together with the cost of working capital);

4) Project - loans from actual or potential owner for the implementation of profitable innovation project.

In general, the risk in business operations - is an economic category, reflecting the degree of success (failure) of the company in achieving its goals, taking into account the influence of controllable and uncontrollable factors. Transactions in financial instruments are always associated with risk.

Financial risks - this is speculative risks.

In general, the financial risk as a measure of economic and social uncertainty can be characterized by:

• largest - high, medium and low;

• the degree of acceptability, acceptable risk, when part of the income lost, critical (local) risk, which is completely lost income and there is a need to compensate the loss, the catastrophic risk of a total loss of property;

• Object - the risk of an entrepreneur, business, bank, insurance company, ie separate legal entities and individuals;

• the type of activity - the risk of production, mediation, trade, transport, consulting, insurance, security and other activities;

• the economic content - pure risk as the objective possibility of incurring losses (no results) and speculative risk as a subjective possibility of a positive or negative result of certain activities;

• the nature - operational, inflation, credit, interest rate, foreign exchange. Operational risk is associated with the error or the wrong organization, the wrong choice of the method of any financial transaction.

Inflation risk is determined by the degree of accuracy of forecasting inflation and its effect on the results of financial and economic activity. Credit risk as the risk of non-payment of the loan amount and interest thereon. Interest rate risk arises from changes in interest rates on the credit facilities that are provided. Currency risks are possible in the event of changes in exchange rates:

• on a sectoral and territorial basis - general economic, industry, country, regional, and so on.

The following types of risk:

• A systematic, there is the risk of financial market crisis;

• patchy, there is a risk the combination of all types of risk associated with particular financial instruments;

• selective - the risk of the wrong choice of securities for investment in the formation of the portfolio;

• Time - the risk issue, purchase or sale of a security at the wrong time, which results in the loss;

• legislative changes (subject to change terms of the issue, it may be considered invalid, etc.);

• Liquidity - the risk associated with the possibility of losses due to the implementation of the security changes in the assessment of its quality;

• inflationary risk that high inflation income earned investors on financial instruments depreciate faster than the rise, the investor makes a real loss.

Systematic risk is the economic and political situation in the country and the world, rising resource prices, obscherynochnoy falling prices of financial assets. The category of systematic risks include interest rate risk, the risk of falling prices and general market risk of inflation. Interest rate risk is particularly relevant in terms of inflation. General market risk of falling prices is associated with a simultaneous drop in the prices of all securities in circulation on the market. This is particularly true of transactions in shares. The degree of risk is different for shares of different issuers. Inflation risk due to changes in the purchasing power of money and leads to the fact that even in the safest investment securities could cause damage. This type of risk exists in all countries, that is inflation - a global trend. In developed countries it is considered normal annual inflation rate of 3%.

Unsystematic risk associated with the financial condition of a particular issuer of the securities. His assessment requires some effort on the part of market intermediaries of financial assets, and on the part of investors. The category of non-systematic risks include liquidity and industry.

Liquidity risk - the risk associated with the possibility of losses due to the implementation of the security changes to assess their quality. Liquidity risk - now one of the most popular in Ukraine.

Industry risk - the risk associated with a specific field. From a position of this kind of risk all industries can be classified into: a) subject to cyclical fluctuations (the industry of construction materials, equipment, etc.) and b) are less susceptible to cyclical fluctuations (the production of consumer goods and food products).

Factors that affect the financial risk and impact on the level, can be divided into two groups: objective and subjective.

Objective factors - those that are not directly dependent on the actions of the management company (the firm), but should be considered in the preparation and decision-making, such as inflation, the actions of competitors, political and economic crises, environmental requirements, customs benefits, preferential treatment .

Group of subjective factors characterizes the enterprise (firm) and internal conditions of its operation, in particular the productive capacity, the availability of highly skilled workers and managerial staff, the organization of the company, the availability of cooperative relationships, the level of technology, etc.