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Revision as of 23:05, 24 December 2024
1. Corporate finance.
In the corporate finance context, risk refers to the degree to which future returns may vary.
Risk is often measured by the standard deviation of forecast returns.
It is often estimated by the standard deviation of historic returns, though this process is inherently error-prone when used for forecasting or for risk management purposes.
2. Capital asset pricing model.
In the Capital Asset Pricing Model, relevant risk is measured by beta.
3. Unknown occurrences.
In a more general sense, risk refers to the unknown (or unknowable) nature of future outcomes involving, for example, market prices or market rates.
4. Adverse effects.
Risk can also refer to the possibility of adverse effects resulting from:
- Changes in market prices or rates, or
- Changes in other general conditions in the market, or
- Other economic factors specific to the business or other organisation (such as the failure of a key supplier).
5. Opportunity and hazard.
More broadly, risk can refer to the possibility of any event occurring that will have an impact on the achievement of objectives.
This includes both the upside opportunity and the downside hazard which could either move us towards or drive us away from achieving our objectives.
Risk in this context is measured both in terms of (1) its impact and (2) its likelihood.
Treasury's role in risk management
No organisation can eliminate all risk, so risk has to be managed effectively. This is best done through a risk-aware culture.
Generally, treasury is about managing risk rather than taking risks.
Many risks should be managed. Risk management is a key activity of the treasury function.
See also
- Agency risk
- Alienation of assets
- Asset risk
- Bankruptcy risk
- Basis risk
- Beta
- Black swan
- Business risk
- Call risk
- C&E risk
- Capital asset pricing model
- Capital risk
- Cash
- Cash balance
- Cash flow
- Climate risk
- Commercial risk
- Commercial credit risk
- Committed risk
- Commodity risk
- Compliance risk
- Concentration risk
- Conduct risk
- Confiscation risk
- Consequential risk
- Contingent risk
- Counterparty risk
- Country risk
- Credit migration risk
- Credit risk
- Currency risk
- Custody risk
- Customer risk
- Cyber risk
- Default
- Delivery risk
- De-risk
- Diversifiable risk
- Diversification
- Documentation risk
- Downside risk
- Economic risk
- Effective annual rate
- Enterprise risk management
- Environmental risk
- Equity risk
- Equity risk premium (ERP)
- Event risk
- Extension risk
- Financial market risk
- Financial market price risk
- Financial risk
- Fiscal risk
- Foreign exchange risk
- Franchise viability risk
- Funding risk
- Gap risk
- Geopolitical risk
- Global risk
- Greenwashing risk
- Guide to risk management
- Herstatt risk
- Inflation risk
- Insurance
- Insurance risk
- Interest rate risk
- Interest Rate Risk in the Banking Book
- Intraday risk
- Key risk indicator
- Legal risk
- Liquidity risk
- Location basis risk
- Margin risk
- Market price risk
- Market risk
- Market Risk in the Banking Book
- Market risk premium (MRP)
- Media risk
- Migration risk
- Model risk
- Non-diversifiable risk
- Non-transferable risk
- Off balance sheet risk
- Operational risk
- Opportunity risk
- Option risk
- Pensions risk
- Performance risk
- Physical risk
- Pipeline risk
- Political risk
- Pre-transaction risk
- Prepayment risk
- Price risk
- Principal risk
- Rating risk
- Refinancing risk
- Regret risk
- Regulatory risk
- Reinvestment risk
- Replacement risk
- Reputational risk
- Response to risk
- Return
- Rewarded risk
- Risk analysis
- Risk appetite
- Risk asset
- Risk averse
- Risk budget
- Risk capacity
- Risk evaluation
- Risk free
- Risk-free rates
- Risk free rate of return
- Risk identification
- Risk management
- Risk management framework
- Risk map
- Risk mitigation
- Risk policy
- Risk premium
- Risk register
- Risk reporting
- Risk tolerance
- Risk transmission
- Risk Weighted Assets
- Rollover risk
- Settlement risk
- Social risk
- Sovereign risk
- Specific risk
- Spread risk
- Spreadsheet risk
- Stranding risk
- Structural risk
- Systematic risk
- Systemic risk
- Systems risk
- Standard deviation
- Supply chain risk
- Tail risk
- Tax risk
- Transaction risk
- Transfer risk
- Transferable risk
- Transition risk
- Translation risk
- Treasury
- Treasury risk
- Uncommitted risk
- Unrewarded risk
- Value at risk
- Weather risk
- Wrong way risk
- Yield curve risk
