International Finance Risk
Financial risks usually are those kind of risks which are related to finance or money. The financial risks related to investments include capital risk, currency risk, as well as liquidity risk. The debt related risks include interest rate risk and credit risk. The international insurance industry also faces a number of risks.
The various risks that influence international financial markets usually include the following:
- Political risk
- Financial risk
- Economic risk
- Country risk
- Market risk
- Exchange rate risk
- Operational risk
- Legal risk
- Hedging risk
- Systemic risk
These types of risk can influence the decision making procedures involved in portfolio investment, foreign direct investment (FDI), and bank credit.
Financial risk management plays a pivotal role in the management of international finance risks.
International finance risk management offers risk assessment services which are beneficial for the following:
- Foreign direct investment
- Rating agencies
- Investment managers, such as mutual funds, etc.
- Insurance companies
- Bank loans
- Portfolio investment
The international financial market has experienced a significant shift in the 1980s and 1990s. The international financial transactions have become more complicated and rapid and as a result of this, the international financial markets are facing greater uncertainties. Currently, the financial services industry has become much more aggressive and the international market participants are getting the exposure to increased financial risks than earlier.
The reasons behind this are:
- The globalization of financial markets
- The unpredictability or volatility of the international financial markets
- The complex structure of the new types of investments
- The increase in the global supply of loanable funds
- The intense international market competition, which is increasing day by day
Hence, it is absolutely necessary that the financial risks are properly measured and preventive actions for efficient management of international financial risks are applied. For maintaining the stability of both international financial market and domestic financial market, the performance of efficient risk management by banks and financial institutions is crucial. Supply of accurate and reliable information on international financial markets is important for the market participants because with help of dependable information, they are able to make knowledgeable investment decisions.