Transferable risk: Difference between revisions
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imported>Doug Williamson (Link with Committed risk and Uncommitted risk pages) |
imported>Doug Williamson (Note that the bank will price the transaction to earn a profit.) |
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Transferable risks are those which can be transferred to someone else, e.g. hedged with risk management products, or passed to an insurer. In this way you can export transferable risks out of your firm (for a price). | Transferable risks are those which can be transferred to someone else, e.g. hedged with risk management products, or passed to an insurer. In this way you can export transferable risks out of your firm (for a price). | ||
An example of a transferable risk is a foreign exchange exposure. A firm can eliminate this risk by entering into a foreign exchange transaction with a bank, thus fixing the rate; what was the firm’s risk now becomes the bank's risk. | An example of a transferable risk is a foreign exchange exposure. | ||
A firm can eliminate this risk by entering into a foreign exchange transaction with a bank, thus fixing the rate; what was the firm’s risk now becomes the bank's risk. | |||
Naturally the bank will price the foreign exchange transaction so that it earns an appropriate reward for accepting and managing the related risk. | |||
Revision as of 14:17, 21 May 2015
Risk can usefully be defined as transferable and non-transferable.
Transferable risks are those which can be transferred to someone else, e.g. hedged with risk management products, or passed to an insurer. In this way you can export transferable risks out of your firm (for a price).
An example of a transferable risk is a foreign exchange exposure.
A firm can eliminate this risk by entering into a foreign exchange transaction with a bank, thus fixing the rate; what was the firm’s risk now becomes the bank's risk.
Naturally the bank will price the foreign exchange transaction so that it earns an appropriate reward for accepting and managing the related risk.
