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Financial risk management is the practice of protecting economic value in a firm by managing exposure to financial risk - principally credit risk and market risk, with more specific variants as listed aside - as well as some aspects of operational risk.
Discover how financial risk management safeguards businesses from market swings and credit risks with strategies like diversification and tech tools.
As applied to finance, risk management concerns the techniques and practices for measuring, monitoring and controlling the market-and credit risk (and operational risk) on a firm's balance sheet, on a bank's credit exposure, or re a fund manager's portfolio value; for an overview see Finance § Risk management.
Credit risk management is a profession that focuses on reducing and preventing losses by understanding and measuring the probability of those losses. Credit risk management is used by banks, credit lenders, and other financial institutions to mitigate losses primarily associated with nonpayment of loans.
Financial risk modeling is the use of formal mathematical and econometric techniques to measure, monitor and control the market risk, credit risk, and operational risk on a firm's balance sheet, on a bank's accounting ledger of tradeable financial assets, or of a fund manager's portfolio value; see Financial risk management.
Risk management is then the study of how to control risks and balance the possibility of gains. For a discussion of the practice of (market) risk management in banks, investment firms, and corporates more generally see Financial risk management § Application.
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