Financial Risk Management Essay Example | Topics and Well Written Essays - 1250 words

Financial Risk Management - Essay Example An analysis of the article Risk Management Lessons from the Credit Crisis can effectively assist in evaluating financial risk management particularly in light of the credit crisis. In presenting its cause, the article is divided into a number of parts each of which has its own speciality. Section 1 looks at the various structures of the modern risk measurement systems. Of particular interest is the position-based risk measurement system that tackles the various drawbacks brought by the traditional returns-based system. The traditional system is shown to be rigid in that it cannot adjust to the various new parameters that characterize a dynamic society. In essence, they prove to be largely unreliable, thereby necessitating the adoption of the position-based measures. The article highlights how the position based risk measures are more versatile and can accommodate various aspects in relation to the dynamism of the contemporary society. Part 2 of the article focuses on the various risk s that establishments are exposed to. The classification is divided into broad categories of known knowns, the unknown unknowns, and even the known unknowns. All of these categories are reached at depending on the pre-existing uncertainties, with the most uncertain risk being classified under the unknown unknowns. Known knowns are fairly manageable, and are the most basic of uncertainties that an institution is bound to encounter. The traditional system is shown to be rigid in that it cannot adjust.