财务风险管理外文翻译英文文献

文献出处: Sharifi, Omid. International Journal of Information, Business and Management6.2 (May 2014): 82-94.原文Financial Risk Management for Small and Medium Sized Enterprises(SMES)Omid SharifiMBA, Department of Commerce and Business Management,Kakatiya University, House No. 2-1-664, Sarawathi negar,1．ABSTRACTmedium sized Enterprises (SME) do also face business risks, Similar to large companies, Small and Mwhich in worst case can cause financial distress and lead to bankruptcy. However, although SME are a major part of the India and also international - economy, research mainly focused on risk management in large corporations. Therefore the aim of this paper is to suggest a possible mean for the risk identification, analysis and monitoring, which can be applied by SME to manage their internal financial risks. For this purpose the financial analysis, which has been used in research to identify indicators for firm bankruptcy, was chosen. The data required for the study was collected from Annual report of the Intec Capital Limited. For the period of five years, from 2008 to 2012.the findings showed the data and the overview can be used in SME risk management.Keywords: Annual report, Small and Medium sized Enterprises, Financial Risks, Risk Management.2．INTRUDUCTIONSmall and medium sized enterprises (SME) differ from large corporations among other aspects first of all in their size. Their importance in the economy however is large . SME sector of India is considered as the backbone of economy contributing to 45% of the industrial output, 40% of India’s exports, employing 60 million people,create 1.3 million jobs every year and produce more than 8000 quality products for the Indian and international markets. With approximately 30 million SMEs in India, 12 million people expected to join the workforce in next 3 years and the sector growing at a rate of 8% per year, Government of India is taking different measures so as to increase their competitiveness in the international market. There are several factors that have contributed towards the growth of Indian SMEs.Few of these include; funding of SMEs by local and foreign investors, the new technology that is used in the market is assisting SMEs add considerable value to their business, various trade directories and trade portals help facilitate trade between buyer and supplier and thus reducing the barrier to trade With this huge potential, backed up by strong government support; Indian SMEs continue to post their growth stories. Despite of this strong growth, there is huge potential amongst Indian SMEs that still remains untapped. Once this untapped potential becomes the source for growth of these units, there would be no stopping to India posting a GDP higher than that of US and China and becoming the world’s economic powerhouse.3. RESEARCH QUESTIONRisk and economic activity are inseparable. Every business decision and entrepreneurial act is connected with risk. This applies also to business of small andmedium sized enterprises as they are also facing several and often the same risks as bigger companies. In a real business environment with market imperfections they need to manage those risks in order to secure their business continuity and add additional value by avoiding or reducing transaction costs and cost of financial distress or bankruptcy. However, risk management is a challenge for most SME. In contrast to larger companies they often lack the necessary resources, with regard to manpower, databases and specialty of knowledge to perform a standardized and structured risk management. The result is that many smaller companies do not perform sufficient analysis to identify their risk. This aspect is exacerbated due to a lack in literature about methods for risk management in SME, as stated by Henschel: The two challenging aspects with regard to risk management in SME are therefore:1. SME differ from large corporations in many characteristics2. The existing research lacks a focus on risk management in SMEThe following research question will be central to this work:1.how can SME manage their internal financial risk?2.Which aspects, based on their characteristics, have to be taken into account for this?3.Which mean fulfils the requirements and can be applied to SME?4. LITERATURE REVIEWIn contrast to larger corporations, in SME one of the owners is often part of the management team. His intuition and experience are important for managing the company.Therefore, in small companies, the (owner-) manager is often responsible for many different tasks and important decisions. Most SME do not have the necessary resources to employ specialists on every position in the company. They focus on their core business and have generalists for the administrative functions. Behr and Guttler find that SME on average have equity ratios lower than 20%. The different characteristics of management, position on procurement and capital markets and the legal framework need to be taken into account when applying management instruments like risk management. Therefore the risk management techniques of larger corporations cannot easily be applied to SME.In practice it can therefore be observed that although SME are not facing less risks and uncertainties than largecompanies, their risk management differs from the practices in larger companies. The latter have the resources to employ a risk manager and a professional, structured and standardized risk management system. In contrast to that, risk management in SME differs in the degree of implementation and the techniques applied. Jonen & Simgen-Weber With regard to firm size and the use of risk management. Beyer, Hachmeister & Lampenius observe in a study from 2010 that increasing firm size among SME enhances the use of risk management. This observation matches with the opinion of nearly 10% of SME, which are of the opinion, that risk management is only reasonable in larger corporations. Beyer, Hachmeister & Lampenius find that most of the surveyed SME identify risks with help of statistics, checklists, creativity and scenario analyses. reveals similar findings and state that most companies rely on key figure systems for identifying and evaluating the urgency of business risks. That small firms face higher costs of hedging than larger corporations. This fact is reducing the benefits from hedging and therefore he advises to evaluate the usage of hedging for each firm individually. The lacking expertise to decide about hedges in SME is also identified by Eckbo, According to his findings, smaller companies often lack the understanding and management capacities needed to use those instruments.5. METHODOLOGY5.1. USE OF FINANCIAL ANALYSIS IN SME RISK MANAGEMENTHow financial analysis can be used in SME risk management?5.1.1 Development of financial risk overview for SMEThe following sections show the development of the financial risk overview. After presenting the framework, the different ratios will be discussed to finally presenta selection of suitable ratios and choose appropriate comparison data.5.1.2. Framework for financial risk overviewThe idea is to use a set of ratios in an overview as the basis for the financial risk management.This provides even more information than the analysis of historical data and allows reacting fast on critical developments and managing the identified risks. However not only the internal data can be used for the risk management. In additionto that also the information available in the papers can be used.Some of them state average values for the defaulted or bankrupt companies one year prior bankruptcy -and few papers also for a longer time horizon. Those values can be used as a comparison value to evaluate the risk situation of the company. For this an appropriate set of ratios has to be chosen.The ratios, which will be included in the overview and analysis sheet, should fulfill two main requirements. First of all they should match the main financial risks of the company in order to deliver significant information and not miss an important risk factor. Secondly the ratios need to be relevant in two different ways. On the one hand they should be applicable independently of other ratios. This means that they also deliver useful information when not used in a regression, as it is applied in many of the papers. On the other hand to be appropriate to use them, the ratios need to show a different development for healthy companies than for those under financial distress. The difference between the values of the two groups should be large enough to see into which the observed company belongs.5.1.3. Evaluation of ratios for financial risk overviewWhen choosing ratios from the different categories, it needs to be evaluated which ones are the most appropriate ones. For this some comparison values are needed in order to see whether the ratios show different values and developments for the two groups of companies. The most convenient source for the comparison values are the research papers as their values are based on large samples of annual reports and by providing average values outweigh outliers in the data. Altman shows a table with the values for 8 different ratios for the five years prior bankruptcy of which he uses 5, while Porporato & Sandin use 13 ratios in their model and Ohlson bases his evaluation on 9 figures and ratios [10]. Khong, Ong & Yap and Cerovac & Ivicic also show the difference in ratios between the two groups, however only directly before bankruptcy and not as a development over time [9]. Therefore this information is not as valuable as the others ([4][15]).In summary, the main internal financial risks in a SME should be covered by financial structure, liquidity and profitability ratios, which are the main categories ofratios applied in the research papers.Financial structureA ratio used in many of the papers is the total debt to total assets ratio, analyzing the financial structure of the company. Next to the papers of Altman, Ohlson and Porporato & Sandin also Khong, Ong & Yap and Cerovac & Ivicic show comparison values for this ratio. Those demonstrate a huge difference in size between the bankrupt and non-bankrupt groups.Figure 1: Development of total debt/ total assets ratioData source: Altman (1968), Porporato & Sandin (2007) and Ohlson (1980), author’s illustrationTherefore the information of total debt/total assets is more reliable and should rather be used for the overview. The other ratios analyzing the financial structure are only used in one of the papers and except for one the reference data only covers the last year before bankruptcy. Therefore a time trend cannot be detected and their relevance cannot be approved.Cost of debtThe costs of debt are another aspect of the financing risk. Porporato & Sandin use the variable interest payments/EBIT for measuring the debt costs. The variable shows how much of the income before tax and interest is spend to finance the debt. This variable also shows a clear trend when firms approach bankruptcy.LiquidityThe ratio used in all five papers to measure liquidity is the current ratio, showingthe relation between current liabilities and current assets (with slight differences in the definition). Instead of the current ratio, a liquidity ratio setting the difference between current assets and current liabilities, also defined as working capital, into relation with total assets could be used.Figure 2: Development of working capital / total assets ratioData source: Altman (1968) and Ohlson (1980); author’s illustratioBasically the ratio says whether the firm would be able to pay back all its’ current liabilities by using its’ current assets. In case it is not able to, which is wh en the liabilities exceed the assets, there is an insolvency risk.6. CRITICAL REVIEW AND CONCLUSIONWhen doing business, constantly decisions have to be made, whose outcome is not certain and thus connected with risk. In order to successfully cope with this uncertainty, corporate risk management is necessary in a business environment, which is influenced by market frictions. Different approaches and methods can be found for applying such a risk management. However, those mainly focus on large corporations, though they are the minority of all companies[13].Furthermore the approaches often require the use of statistical software and expert knowledge, which is most often not available in SME. They and their requirements for risk management have mainly been neglected [17][13].This also includes the internal financial risk management, which was in the focus of this paper. Due to the existing risks in SME and their differences to larger corporations as well as the lack of suitable risk management suggestions in theory, there is a need for a suggestion for a financial risk management in SME. Theaim was to find a possible mean for the risk identification, analysis and monitoring, which can be applied by SME to manage their internal financial risks. For this purpose the financial analysis, which has been used in research to identify indicators for firm bankruptcy, was chosen. Based on an examination and analysis of different papers, despite of their different models, many similarities in the applied ratios could be identified. In general the papers focus on three categories of risk, namely liquidity, profitability and solvency, which are in accordance to the main internal financial risks of SME. From the ratios the most appropriate ones with regard to their effectiveness in identifying risks.译文中小企业的财务风险管理奥米德沙利菲1、摘要中小型企业(SME)和大型企业一样，也面临着业务风险，在最糟糕的情况下，可能会导致金融危机，甚至破产。

银行财务风险的外文文献银行财务风险的外文文献：1. Bank Financial Risk Management: A Practical Guide to Managing and Mitigating Financial Risks本书是由银行财务风险管理专家写的一本实践指南，介绍了银行在管理和缓解金融风险方面的具体策略和方法。

包括了市场风险、信用风险、利率风险、流动性风险等方面的内容。

2. Managing Financial Risks: From Global to Local该书是一本汇集了全球各地知名专家的讲座，内容涵盖了银行金融风险的最新研究成果。

从宏观经济风险到信用风险等方面，对银行金融风险管理提供了全面的视角和思路。

3. Financial Risk Manager Handbook该书是由全球金融风险管理协会GARP撰写的指南手册，涵盖了金融风险管理的理论、实践和案例研究。

介绍了金融风险的识别、量化、监控和管理等重要方面。

4. Risk Management and Financial Institutions该书是一本行业标准教材，由两位金融风险管理领域的权威合著，涉及了金融风险定义、评估和管理的关键内容。

书中还包括了现代金融和银行业的最新发展和趋势等方面的内容。

5. Financial Risk: Theory, Evidence and Implications该书是一本由多位学者合著的金融风险研究专著，旨在为银行业和投资机构等金融市场从业者提供有关金融风险识别和管理的理论和实践指南。

通俗易懂的语言介绍了金融市场的基本原则，包括风险、收益、投资组合构建和风险管理等重要方面。

财务风险管理中英文资料翻译Financial Risk ManagementAlthough financial risk has increased significantly in recent years, risk and risk management are not contemporary issues. The result of increasingly global markets is that risk may originate with events thousands of miles away that have nothing to do with the domestic market. Information is available instantaneously, which means that change, and subsequent market reactions, occur very quickly. The economic climate and markets can be affected very quickly by changes in exchange rates, interest rates, and commodity prices. Counterparties can rapidly become problematic. As a result, it is important to ensure financial risks areidentified and managed appropriately.Preparation is a key component of risk management.What Is Risk?Risk provides the basis for opportunity. The terms risk and exposure have subtle differences in their meaning. Risk refers to the probability of loss,while exposure is the possibility of loss, although they are often used interchangeably. Risk arises as a result of exposure.Exposure to financial markets affects most organizations, either directly or indirectly. When an organization has financial market exposure, there is a possibility of loss but also an opportunity for gain or profit. Financial market exposure may provide strategic or competitive benefits.Risk is the likelihood of losses resulting from events such as changes in market prices. Events with a low probability of occurring, but that may result in a high loss, are particularly troublesome because they are often not anticipated. Put another way, risk is the probable variability of returns.Since it is not always possible or desirable to eliminate risk, understanding it is an important step in determining how to manage it. Identifying exposures and risks forms the basis for an appropriate financial risk management strategy.How Does Financial Risk?Financial risk arises through countless transactions of a financial nature,including sales and purchases, investments and loans, and various other businessactivities. It can arise as a result of legal transactions, new projects, mergers andacquisitions, debt financing, the energy component of costs, or through the activitiesof management, stakeholders, competitors, foreign governments, or weather. When financial prices change dramatically, it can increase costs, reduce revenues,orotherwise adversely impact the profitability of an organization. Financial fluctuationsmay make it more difficult to plan and budget, price goods and services, and allocatecapital.There are three main sources of financialrisk:1. Financial risks arising from an organization ' s expionsmuraerktoetcphrai cnegse,ssuch as interest rates, exchange rates, and commodityprices.2. Financial risks arising from the actions of, and transactions with, other organizations such as vendors, customers, and counterparties in derivatives transactions3. Financial risks resulting from internal actions or failures of the organization,particularly people, processes, andsystemsWhat Is Financial Risk Management?Financial risk management is a process to deal with the uncertaintiesresultingfrom financial markets. It involves assessing the financial risks facing an organizationand developing management strategies consistent with internal priorities and policies.Addressing financial risks proactively may provide an organization with a competitiveadvantage.It also ensures that management,operational staff, stakeholders, and theboard of directors are in agreement on key issues ofrisk.Managing financial risk necessitates making organizational decisions about risksthat are acceptable versus those that are not. The passive strategy of taking no actionis the acceptance of all risks bydefault.Organizations manage financial risk using a variety of strategies andproducts. Itis important to understand how these products and strategies work to reduceriskwithin the context of the organization toleran'ces arinskdobjectives.Strategies for risk management often involve derivatives. Derivatives are traded widely among financial institutions and on organized exchanges. The value of derivatives contracts, such as futures, forwards, options, and swaps, is derived from the price of the underlying asset. Derivatives trade on interest rates, exchange rates, commodities, equity and fixed income securities, credit, and even weather.The products and strategies used by market participants to manage financial risk are the same ones used by speculators to increase leverage and risk. Although it can be argued that widespread use of derivatives increases risk, the existence of derivatives enables those who wish to reduce risk to pass it along to those who seek risk and its associated opportunities.The ability to estimate the likelihood of a financial loss is highly desirable.However, standard theories of probability often fail in the analysis of financial markets. Risks usually do not exist in isolation, and the interactions of several exposures may have to be considered in developing an understanding of how financial risk arises. Sometimes, these interactions are difficult to forecast, since they ultimately depend on human behavior.The process of financial risk management is an ongoing one. Strategies need to be implemented and refined as the market and requirements change. Refinements may reflect changing expectations about market rates, changes to the business environment, or changing international political conditions, for example. In general, the process can be summarized as follows: 1、Identify and prioritize key financial risks.2、Determine an appropriate level of risk tolerance.3、Implement risk management strategy in accordance with policy.4、Measure, report, monitor, and refine as needed.DiversificationFor many years, the riskiness of an asset was assessedbased only on the variability of its returns. In contrast, modern portfolio theory considers not only an asset ' s riskiness, but also its contributiotno the overall riskiness of the portfolio towhich it is added. Organizations may have an opportunity to reduce risk as aresult of risk diversification.In portfolio management terms, the addition of individual components to a portfolio provides opportunities for diversification, within limits. A diversified portfolio contains assets whose returns are dissimilar, in other words, weakly or negatively correlated with one another. It is useful to think of the exposures of an organization as a portfolio and consider the impact of changes or additions on the potential risk of the total.Diversification is an important tool in managing financial risks. Diversification among counterparties may reduce the risk that unexpected events adversely impact the organization through defaults. Diversification among investment assetsreduces the magnitude of loss if one issuer fails.Diversification of customers, suppliers, and financing sources reduces the possibility that an organization will have its business adversely affected by changes outside management' csontrol. Although the risk of loss still exists, diversification may reduce the opportunity for large adverse outcomes.Risk Management ProcessThe process of financial risk management comprises strategies that enable an organization to manage the risks associated with financial markets. Risk management is a dynamic process that should evolve with an organization and its business. It involves and impacts many parts of an organization including treasury, sales, marketing, legal, tax, commodity, and corporate finance.The risk management process involves both internal and external analysis. The first part of the process involves identifying and prioritizing the financialrisks facing an organization and understanding their relevance. It may be necessary to examine the organization and its products, management, customers, suppliers, competitors, pricing, industry trends, balance sheet structure, and position in the industry. It is also necessary to consider stakeholders and their objectives and tolerance for risk.Once a clear understanding of the risks emerges, appropriate strategies canbe implemented in conjunction with risk management policy. For example, it might be possible to change where and how business is done, thereby reducing the organization ' s exposure and risk. Alternatively, exisetixnpgosures may be managed with derivatives. Another strategy for managing risk is to accept allrisks and the possibility of losses.There are three broad alternatives for managing risk:1.Do nothing and actively, or passively by default, accept all risks.2.Hedge a portion of exposures by determining which exposures can and should be hedged.3.Hedge all exposures possible.Measurement and reporting of risks provides decision makers with information to execute decisions and monitor outcomes, both before and after strategies are taken to mitigate them. Since the risk management process is ongoing, reportingand feedback can be used to refine the system by modifying or improving strategies.An active decision-making process is an important component of risk management.Decisions about potential loss and risk reduction provide a forum for discussion of important issues and the varying perspectives of stakeholders.Factors that Impact Financial Rates and PricesFinancial rates and prices are affected by a number of factors. It is essential to understand the factors that impact markets because those factors, in turn, impact the potential risk of an organization.Factors that Affect Interest RatesInterest rates are a key component in many market prices and an important economic barometer. They are comprised of the real rate plus a component for expected inflation, since inflation reduces the purchasing power of a lender ' s assets .The greater the term to maturity, the greater the uncertainty. Interest rates are also reflective of supply and demand for funds and credit risk.Interest rates are particularly important to companies and governments because they are the key ingredient in the cost of capital. Most companies and governments require debt financing for expansion and capital projects. When interest rates increase, the impact can be significant on borrowers. Interest rates also affect prices in otherfinancial markets, so their impact is far-reaching.Other components to the interest rate may include a risk premium to reflect the creditworthiness of a borrower. For example, the threat of political or sovereign risk can cause interest rates to rise, sometimes substantially, as investors demand additional compensation for the increased risk of default.Factors that influence the level of market interest rates include: 1、Expected levels of inflation 2、General economic conditions 3、Monetary policy and the stance of the central bank 4、Foreign exchange market activity 5、Foreign investor demand for debt securities 6、Levels of sovereign debt outstanding 7、Financial and political stabilityYield CurveThe yield curve is a graphical representation of yields for a range of terms to maturity. For example, a yield curve might illustrate yields for maturity from one day (overnight) to 30-year terms. Typically, the rates are zero coupon government rates.Since current interest rates reflect expectations, the yield curve providesuseful 's expectations oinf tfeurteusret rates. Implied interest rates for forward-starting terms can be calculated using the information in the yieldcurve. For example, using rates for one- and two-year maturities, the expected one-year interestrate beginning in one year The shape of the yield curve is widely analyzed and monitored by marketparticipants. As a gauge of expectations, it is often considered to be a predictor of future economic activity and may provide signals of a pending change in economic fundamentals.The yield curve normally slopes upward with a positive slope, aslenders/investors demand higher rates from borrowers for longer lending terms. Since the chance of a borrower default increases with term to maturity, lenders demand to be compensated accordingly.Interest rates that make up the yield curve are also affected by the expected rate of inflation. Investors demand at least the expected rate of inflation from borrowers, in addition to lending and risk components. If investors expect future inflation to be higher, they will demand greater premiums for longer terms to compensatefor this uncertainty. As a result, the longer the term, the higher the interest rate (all else being equal), resulting in an upward-sloping yield curve.Occasionally, the demand for short-term funds increases substantially, and short-term interest rates may rise above the level of longer term interest rates. This results in an inversion of the yield curve and a downward slope to its appearance. The high cost of short-term funds detracts from gains that would otherwise be obtained through investment and expansion and make the economy vulnerable to slowdown or recession. Eventually, rising interest rates slow the demand for both short-term and long-term funds. A decline in all rates and a return to a normal curve may occur as a result of the slowdown.information about the markets time can be determined.Source: Karen A. Horcher, 2005.“ What Is Financial RiskManagement?”. Essentialsof Financial Risk Management, John Wiley & Sons, Inc.pp.1-22.财务风险管理尽管近年来金融风险大大增加，但风险和风险管理不是当代的主要问题。

How Important is Financial Risk?IntroductionThe financial crisis of 2008 has brought significant attention to the effects of financial leverage. There is no doubt that the high levels of debt financing by financial institutions and households significantly contributed to the crisis. Indeed, evidence indicates that excessive leverage orchestrated by major global banks (e.g., through the mortgage lending and collateralized debt obligations) and the so-called “shadow banking system” may be the underlying cau se of the recent economic and financial dislocation. Less obvious is the role of financial leverage among nonfinancial firms. To date, problems in the U.S. non-financial sector have been minor compared to the distress in the financial sector despite the seizing of capital markets during the crisis. For example, non-financial bankruptcies have been limited given that the economic decline is the largest since the great depression of the 1930s. In fact, bankruptcy filings of non-financial firms have occurred mostly in U.S. industries (e.g., automotive manufacturing, newspapers, and real estate) that faced fundamental economic pressures prior to the financial crisis. This surprising fact begs the question, “How important is financial risk for non-financial firms?” At the heart of this issue is the uncertainty about the determinants of total firm risk as well as components of firm risk.StudyRecent academic research in both asset pricing and corporate finance has rekindled an interest in analyzing equity price risk. A current strand of the asset pricing literature examines the finding of Campbell et al. (2001) that firm-specific (idiosyncratic) risk has tended to increase over the last 40 years. Other work suggests that idiosyncratic risk may be a priced risk factor (see Goyal and Santa-Clara, 2003, among others). Also related to these studies is work by Pástor and Veronesi (2003) showing how investor uncertainty about firm profitability is an important determinant of idiosyncratic risk and firm value. Other research has examined the role of equity volatility in bond pricing (e.g., Dichev, 1998, Campbell, Hilscher, and Szilagyi, 2008).However, much of the empirical work examining equity price risk takes the risk of assets as given or tries to explain the trend in idiosyncratic risk. In contrast, thispaper takes a different tack in the investigation of equity price risk. First, we seek to understand the determinants of equity price risk at the firm level by considering total risk as the product of risks inherent in the firms operations (i.e., economic or business risks) and risks associated with financing the firms operations (i.e., financial risks). Second, we attempt to assess the relative importance of economic and financial risks and the implications for financial policy.Early research by Modigliani and Miller (1958) suggests that financial policy may be largely irrelevant for firm value because investors can replicate many financial decisions by the firm at a low cost (i.e., via homemade leverage) and well-functioning capital markets should be able to distinguish between financial and economic distress. Nonetheless, financial policies, such as adding debt to the capital structure, can magnify the risk of equity. In contrast, recent research on corporate risk management suggests that firms may also be able to reduce risks and increase value with financial policies such as hedging with financial derivatives. However, this research is often motivated by substantial deadweight costs associated with financial distress or other market imperfections associated with financial leverage. Empirical research provides conflicting accounts of how costly financial distress can be for a typical publicly traded firm.We attempt to directly address the roles of economic and financial risk by examining determinants of total firm risk. In our analysis we utilize a large sample of non-financial firms in the United States. Our goal of identifying the most important determinants of equity price risk (volatility) relies on viewing financial policy as transforming asset volatility into equity volatility via financial leverage. Thus, throughout the paper, we consider financial leverage as the wedge between asset volatility and equity volatility. For example, in a static setting, debt provides financial leverage that magnifies operating cash flow volatility. Because financial policy is determined by owners (and managers), we are careful to examine the effects of firms’ asset and operating characteristics on financial policy. Specifically, we examine a variety of characteristics suggested by previous research and, as clearly as possible, distinguish between those associated with the operations of the company (i.e. factors determining economic risk) and those associated with financing the firm (i.e. factors determining financial risk). We then allow economic risk to be a determinant of financial policy in the structural framework of Leland and Toft (1996), or alternatively,in a reduced form model of financial leverage. An advantage of the structural model approach is that we are able to account for both the possibility of financial and operating implications of some factors (e.g., dividends), as well as the endogenous nature of the bankruptcy decision and financial policy in general.Our proxy for firm risk is the volatility of common stock returns derived from calculating the standard deviation of daily equity returns. Our proxies for economic risk are designed to capture the essential characteristics of the firms’ operations and assets that determine the cash flow generating process for the firm. For example, firm size and age provide measures of line of- business maturity; tangible assets (plant, property, and equipment) serve as a proxy for the ‘hardness’ of a firm’s assets; capital expenditures measure capital intensity as well as growth potential. Operating profitability and operating profit volatility serve as measures of the timeliness and riskiness of cash flows. To understand how financial factors affect firm risk, we examine total debt, debt maturity, dividend payouts, and holdings of cash and short-term investments.The primary result of our analysis is surprising: factors determining economic risk for a typical company explain the vast majority of the variation in equity volatility. Correspondingly, measures of implied financial leverage are much lower than observed debt ratios. Specifically, in our sample covering 1964-2008 average actual net financial (market) leverage is about 1.50 compared to our estimates of between 1.03 and 1.11 (depending on model specification and estimation technique). This suggests that firms may undertake other financial policies to manage financial risk and thus lower effective leverage to nearly negligible levels. These policies might include dynamically adjusting financial variables such as debt levels, debt maturity, or cash holdings (see, for example, Acharya, Almeida, and Campello, 2007). In addition, many firms also utilize explicit financial risk management techniques such as the use of financial derivatives, contractual arrangements with investors (e.g. lines of credit, call provisions in debt contracts, or contingencies in supplier contracts), special purpose vehicles (SPVs), or other alternative risk transfer techniques.The effects of our economic risk factors on equity volatility are generally highly statistically significant, with predicted signs. In addition, the magnitudes of the effects are substantial. We find that volatility of equity decreases with the size and age of the firm. This is intuitive since large and mature firms typically have more stable lines ofbusiness, which should be reflected in the volatility of equity returns. Equity volatility tends to decrease with capital expenditures though the effect is weak. Consistent with the predictions of Pástor and Veronesi (2003), we find that firms with higher profitability and lower profit volatility have lower equity volatility. This suggests that companies with higher and more stable operating cash flows are less likely to go bankrupt, and therefore are potentially less risky. Among economic risk variables, the effects of firm size, profit volatility, and dividend policy on equity volatility stand out. Unlike some previous studies, our careful treatment of the endogeneity of financial policy confirms that leverage increases total firm risk. Otherwise, financial risk factors are not reliably related to total risk.Given the large literature on financial policy, it is no surprise that financial variables are,at least in part, determined by the economic risks firms take. However, some of the specific findings are unexpected. For example, in a simple model of capital structure, dividend payouts should increase financial leverage since they represent an outflow of cash from the firm (i.e., increase net debt). We find that dividends are associated with lower risk. This suggests that paying dividends is not as much a product of financial policy as a characteristic of a firm’s operations(e.g., a mature company with limited growth opportunities). We also estimate how sensitivities to different risk factors have changed over time. Our results indicate that most relations are fairly stable. One exception is firm age which prior to 1983 tends to be positively related to risk and has since been consistently negatively related to risk. This is related to findings by Brown and Kapadia (2007) that recent trends in idiosyncratic risk are related to stock listings by younger and riskier firms.Perhaps the most interesting result from our analysis is that our measures of implied financial leverage have declined over the last 30 years at the same time that measures of equity price risk (such as idiosyncratic risk) appear to have been increasing. In fact, measures of implied financial leverage from our structural model settle near 1.0 (i.e., no leverage) by the end of our sample. There are several possible reasons for this. First, total debt ratios for non-financial firms have declined steadily over the last 30 years, so our measure of implied leverage should also decline. Second, firms have significantly increased cash holdings, so measures of net debt (debt minus cash and short-term investments) have also declined. Third, the composition of publicly traded firms has changed with more risky (especially technology-oriented)firms becoming publicly listed. These firms tend to have less debt in their capital structure. Fourth, as mentioned above, firms can undertake a variety of financial risk management activities. To the extent that these activities have increased over the last few decades, firms will have become less exposed to financial risk factors.We conduct some additional tests to provide a reality check of our results. First, we repeat our analysis with a reduced form model that imposes minimum structural rigidity on our estimation and find very similar results. This indicates that our results are unlikely to be driven by model misspecification. We also compare our results with trends in aggregate debt levels for all U.S. non-financial firms and find evidence consistent with our conclusions. Finally, we look at characteristics of publicly traded non-financial firms that file for bankruptcy around the last three recessions and find evidence suggesting that these firms are increasingly being affected by economic distress as opposed to financial distress.ConclusionIn short, our results suggest that, as a practical matter, residual financial risk is now relatively unimportant for the typical U.S. firm. This raises questions about the level of expected financial distress costs since the probability of financial distress is likely to be lower than commonly thought for most companies. For example, our results suggest that estimates of the level of systematic risk in bond pricing may be biased if they do not take into account the trend in implied financial leverage (e.g., Dichev, 1998). Our results also bring into question the appropriateness of financial models used to estimate default probabilities, since financial policies that may be difficult to observe appear to significantly reduce risk. Lastly, our results imply that the fundamental risks born by shareholders are primarily related to underlying economic risks which should lead to a relatively efficient allocation of capital.Some readers may be tempted to interpret our results as indicating that financial risk does not matter. This is not the proper interpretation. Instead, our results suggest that firms are able to manage financial risk so that the resulting exposure to shareholders is low compared to economic risks. Of course, financial risk is important to firms that choose to take on such risks either through high debt levels or a lack of risk management. In contrast, our study suggests that the typical non-financial firm chooses not to take these risks. In short, gross financial risk may be important, but firms can manage it. This contrasts with fundamental economic and business risks thatare more difficult (or undesirable) to hedge because they represent the mechanism by which the firm earns economic profits.References[1]Shyam,Sunder.Theory Accounting and Control[J].An Innternational Theory on PublishingComPany.2005[2]Ogryezak,W,Ruszeznski,A. Rom Stomchastic Dominance to Mean-Risk Models:Semide-Viations as Risk Measures[J].European Journal of Operational Research.[3] Borowski, D.M., and P.J. Elmer. An Expert System Approach to Financial Analysis: the Case of S&L Bankruptcy [J].Financial Management, Autumn.2004;[4] Casey, C.and N. Bartczak. Using Operating Cash Flow Data to Predict Financial Distress: Some Extensions[J]. Journal of Accounting Research,Spring.2005;[5] John M.Mulvey,HafizeGErkan.Applying CVaR for decentralized risk management of financialcompanies[J].Journal of Banking&Finanee.2006;[6] Altman. Credit Rating:Methodologies,Rationale and Default Risk[M]．Risk Books,London.译文：财务风险的重要性引言2008年的金融危机对金融杠杆的作用产生重大影响。

中小企业的财务风险管理外文文献翻译2014年译文3000字Financial Risk Management for Small and Medium-Sized Enterprises (SMEs)Financial risk management is an essential aspect of business management。

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中英文资料外文翻译外文资料Financial firm bankruptcy and systemic riskIn Fall 2008 when the Federal Reserve and the Treasury injected $85 billion into the insurance behemoth American International Group (AIG), themoney lent to AIGwent straight to counterparties, and very few funds remained with the insurer. Among the largest recipients was Goldman Sachs, to whomabout $12 billionwas paid to undoAIG’s credit default swaps (CDSs). The bailout plan focused on repaying the debt by slowly selling off AIG’s assets, w ith no intention of maintaining jobs or allowing the CDSmarket to continue to function as before. Thus, the government’s effort to avoid systemic risk with AIG was mainly about ensuring that firms with which AIG had done business did not fail as a result. T he concerns are obviously greatest vis-a-vis CDSs, ofwhich AIG had over $400 billion contracts outstanding in June 2008.In contrast, the government was much less enthusiastic about aiding General Motors, presumably because they believed its failure would not cause major macroeconomic repercussions by imposing losses on related firms. This decision is consistent with the view in macroeconomicresearch that financialfirmbankruptcies pose a greater amount of systemic risk than nonfinancial firmbankruptcies. For example, Bordo and Haubrich (2009) conclude that “...more severe financial events are associated withmore severe recessions...” Likewise, Bernanke (1983) argues the Great Depressionwas so severe because ofweakness in the banking systemthat affected the amount of credit available for investment. Bernanke et al. (1999) hypothesize a financial accelerator mechanism, whereby distress in one sector of the economy leads to more precarious balance sheets and tighter credit conditions. This in turn leads to a drop in investment, which is followed by less lending and a widespread downturn. Were shocks to the economy always to come in the form of distress at nonfinancial firms, these authors argue that the business downturns would not be so severe.We argue instead that the contagious impact of a nonfinancial firm’s bankruptcy is expected to be far larger than that of a financial firm like AIG, although neither would be catastrophic to the U.S. economy through counterparty risk channels. This is not to say that an episode ofwidespread financial distress among our largest banks would not be followed by an especially severe recession, only that such failures would not cause a recession or affect the depth of a recession. Rather such bankruptcies are symptomatic of common factors in portfolios that lead to wealth losses regardless of whether any firm files for bankruptcy.Pervasive financial fragility may occur because the failure of one firm leads to the failure of other firms which cascades through the system (e.g., Davis and Lo, 1999; Jarrow and Yu, 2001). Or systemic risk may wreak havoc when a number of financial firms fail simultaneously, as in the Great Depression when more than 9000 banks failed (Benston, 1986). In the former case, the failure of one firm, such as AIG, Lehman Brothers or Bear Stearns, could lead to widespread failure through financial contracts such as CDSs. In the latter case, the fact that so many financial institutions have failed means that both the money supply and the amount of credit in the economy could fall so far as to cause a large drop in economic activity (Friedman and Schwartz, 1971).While a weak financial systemcould cause a recession, the recession would not arise because one firm was allowed to file bankruptcy. Further, should one or the other firmgo bankrupt, the nonfinancial firmwould have the greater impact on the economy.Such extreme real effects that appear to be the result of financial firm fragility have led to a large emphasis on the prevention of systemic risk problems by regulators. Foremost amo ng these policies is “too big to fail” (TBTF), the logic of which is that the failure of a large financial institution will have ramifications for other financial institutions and therefore the risk to the economywould be enormous. TBTF was behind the Fed’s decisions to orchestrate the merger of Bear Stearns and J.P.Morgan Chase in 2008, its leadership in the restructuring of bank loans owed by Long Term Capital Management (LTCM), and its decision to prop up AIG. TBTF may be justified if the outcome is preven tion of a major downswing in the economy. However, if the systemic risks in these episodes have been exaggerated or the salutary effects of these actions overestimated, then the cost to the efficiency of the capital allocation system may far outweigh any po tential benefits from attempting to avoid another Great Depression.No doubt, no regulator wants to take the chance of standing down while watching over another systemic risk crisis, sowe do not have the ability to examine empiricallywhat happens to the economy when regulators back off. There are very fewinstances in themodern history of the U.S.where regulators allowed the bankruptcy of amajor financial firm.Most recently,we can point to the bankruptcy of Lehman,which the Fed pointedly allowed to fail.However,with only one obvious casewhere TBTFwas abandoned, we have only an inkling of how TBTF policy affects systemic risk. Moreover, at the same time that Lehman failed, the Fed was intervening in the commercial paper market and aiding money marketmutual fundswhile AIGwas downgraded and subsequently bailed out. In addition, the Federal Reserve and the Treasury were scaremongering about the prospects of a second Great Depression to make the passage of TARPmore likely. Thuswewill never knowifthemarket downturn th at followed the Lehman bankruptcy reflected fear of contagion from Lehman to the real economy or fear of the depths of existing problems in the real economy that were highlighted so dramatically by regulators.In this paper we analyze the mechanisms by which such risk could cause an economy-wide col-lapse.We focus on two types of contagion that might lead to systemic risk problems: (1) information contagion,where the information that one financial firmis troubled is associatedwith negative shocksat other financ ial institutions largely because the firms share common risk factors; or (2) counterparty contagion,where one important financial institution’s collapse leads directly to troubles at other cred-itor firms whose troubles snowball and drive other firms into distress. The efficacy of TBTF policies depends crucially on which of these two types of systemic riskmechanisms dominates.Counterparty contagion may warrant intervention in individual bank failureswhile information contagion does not.If regulators do not ste p in to bail out an individual firm, the alternative is to let it fail. In the case of a bank, the process involves the FDIC as receiver and the insured liabilities of the firmare very quickly repaid. In contrast, the failure of an investment bank or hedge fund does not involve the FDIC andmay closely resemble a Chapter 11 or Chapter 7 filing of a nonfinancial firm. However, if the nonbank financial firm inquestion has liabilities that are covered by the Securities Industry Protection Corporation (SIPC), the firmi s required by lawunder the Securities Industry Protection Act (SIPA) to liquidate under Chapter 7 (Don and Wang, 1990). This explains in large partwhy only the holding company of Lehman filed for bankruptcy in 2008 and its broker–dealer subsidiaries were n ot part of the Chapter 11 filing.A major fear of a financial firm liquidation, whether done through the FDIC or as required by SIPA, is that fire sales will depress recoveries for the creditors of the failed financial firm and that these fire saleswill have ramifications for other firms in related businesses, even if these businesses do not have direct ties to the failed firm (Shleifer and Vishny, 1992). This fear was behind the Fed’s decision to extend liquidity to primary dealers inMarch 2008 – Fed Chairman Bernanke explained in a speech on financial system stability that“the risk developed that liquidity pressuresmight force dealers to sell assets into already illiquid markets. Thismight have resulted in...[a] fire sale scenario..., inwhich a cascade of failures andliquidations sharply depresses asset prices, with adverse financial and economic implications.”(May 13, 2008 speech at the Federal Reserve Bank of Atlanta conference at Sea Island, Georgia) The fear of potential fire sales is expressed in further detail in t he same speech as a reason for the merger of Bear Stearns and JP Morgan:“Bear...would be forced to file for bankruptcy...[which] wouldhave forced Bear’s secured creditors and counterparties to liquidate the underlying collateral and, given the illiquidity of markets, those creditors and counter parties might well have sustained losses. If they responded to losses or the unexpected illiquidity of their holdings by pulling back from providing secured financing to other firms, a much broader liquidity crisis wou ld have ensued.”The idea that creditors of a failed firm are forced to liquidate assets, and to do so with haste, is counter to the basic tenets of U.S. bankruptcy laws, which are set up to allow creditors the ability to maximize the value of the assets now under their control. If that value is greatest when continuing to operate, the laws allow such a reorganization of the firm. If the value in liquidation is higher, the laws are in no way prejudiced against selling assets in an orderly procedure. Bankruptcy actually reduces the likelihood of fire sales because assets are not sold quickly once a bankruptcy filing occurs. Cash does not leave the bankrupt firm without the approval of a judge.Without pressure to pay debts, the firm can remain in bankruptcy for months as it tries to decide on the best course of action. Indeed, a major complaint about the U.S. code is that debtors can easily delay reorganizing and slow down the process.If, however, creditors and management believe that speedy assets sales are in their best interest, then they can press the bankruptcy judge to approve quick action. This occurred in the case of Lehman’s asset sale to Barclays,which involved hiring workers whomight have split up were their divisions not sold quickly.金融公司破产及系统性的风险2008年秋，当美联邦储备委员会和财政部拒绝85亿美金巨资保险投入到美国国际集团时，这边借给美国国际集团的货款就直接落到了竞争对手手里，而投保人只得到极少的一部分资金。

企业财务风险管理外文文献Enterprise Financial Risk Management: A Literature ReviewAbstractThe enterprise financial risk management (EFRM) is a crucial tool applied by modern enterprise to manage their financial exposure and control risks. EFRM systems have become increasingly complex with time and one must have a thorough knowledge of the different facets of enterprise finance in order to effectively use them. This literature review briefly reviews existing literature and provides current understanding of the EFRM systems. Key topics discussed include the need for EFRM and the various risk management frameworks, regulations, and tools. Additionally, recent research efforts on areas such as Enterprise Risk Management Systems (ERM) and financial forecasts are discussed.1. IntroductionRisk management is an important aspect of corporate management and is extensively applied in modern enterprises. With the emergence of globalization, uncertainties, and complexity in the global business environment, effective risk management is a necessity for all corporations. Enterprises must manage different types of risks associated with inadequate financial results, including liquidity issues, treasury and debt management, insolvency or bankruptcy, and others. Enterprise Financial Risk Management (EFRM) has become an increasingly important tool to manage the risks associated with corporate financial activities. The purpose of this review is to explorethe most recent advances and research in the field of EFRM to providea comprehensive understanding of the current state of the field.2. Need for EFRMFinancial risks are a major concern in the management of any business. Inadequate risk management can lead to financial losses and even bankruptcy. The EFRM system helps to alleviate the associated financial risks. Financial risks can arise from various sources, such as external environment changes, inadequate financial planning, and insufficient internal control systems. Therefore, enterprises should implement proper EFRM strategies to protect their financial health and minimize the associated risks.EFRM systems provide the enterprise with a comprehensive risk management framework, allowing them to identify and address any existing and potential financial risks. This risk management system also enables the enterprise to analyze the short-term and long-term effects of different management decisions and to plan and implement adequate responses. Furthermore, EFRM systems facilitate financial forecasting and help management to make informed decisions. Proper risk management reduces uncertainty and increases the enterprises’ profitability.3. EFRM Risk Management FrameworksThe first step in EFRM is to identify different financial risks. Risks can be divided into two broad categories, namely, market risks and operational risks. Market risks are the risks associated with different types of financial markets, such as foreign exchanges, stocks,commodities, and interest rates. On the other hand, operational risks are the risks associated with the operations of the enterprise. These risks involve internal factors such as personnel, policies, and procedures.Once the financial risks have been identified, the enterprise should develop a risk management strategy and goals that cover the different types of risks. Different risk management tools and techniques can be used to address these risks. These tools and techniques include the use of financial analysis, financial simulation, portfolio management, financial derivatives, and enterprise risk management systems (ERM). Additionally, regulations and compliance must be taken into account when devising a risk management framework.4. Regulations and ToolsAnother important aspect of EFRM is the application of regulations. The enterprise should ensure compliance with all applicable regulators and laws and should develop a comprehensive risk management system that adheres to all the relevant laws and regulations. Furthermore, enterprise risk management systems (ERM) have become increasingly important in the management of financial risks. ERM systems are computer-based systems that allow enterprises to manage their financial risks in an efficient and integrated manner. These systems provide support in forecasting, reporting, and decision-making.5. Recent Research EffortsOver the past few years, there has been an increasing number of research studies in the field of EFRM. Some of the recent research efforts include the development of models for financial forecasts, the assessment of ERM systems, the design of financial derivatives and structured products, and the application of artificial intelligence and machine learning in financial forecasting. Further research is needed to identify new techniques and approaches that can be used to improve the effectiveness of the EFRM systems.6.ConclusionIn conclusion, effective EFRM is essential for a successful enterprise due to the increasing complexity of the global business environment. Risk management tools, techniques, and regulations must be applied to address the different types of financial risks. Additionally, research efforts in the field of EFRM are continuously increasing, and it is important to keep up to date with the latest developments.。

文献出处：Sharifi, Omid. International Journal of Information, Business and Management 6.2 (May 2014): 82-94.2014年，最新文献翻译，译文3000多字原文Financial Risk Management for Small and Medium SizedEnterprises(SMES)Omid SharifiMBA, Department of Commerce and Business Management,Kakatiya University, House No. 2-1-664, Sarawathi negar,Gopalpur, Hanamakonda, A.P., IndiaE-Mail: **********************, Phone: 0091- 8808173339RESEARCH QUESTIONRisk and economic activity are inseparable. Every business decision and entrepreneurial act is connected with risk. This applies also to business of small and medium sized enterprises as they are also facing several and often the same risks as bigger companies. In a real business environment with market imperfections they need to manage those risks in order to secure their business continuity and add additional value by avoiding or reducing transaction costs and cost of financial distress or bankruptcy. However, risk management is a challenge for most SME. In contrast to larger companies they often lack the necessary resources, with regard to manpower, databases and specialty of knowledge to perform a standardized and structured risk management. The result is that many smaller companies do not perform sufficient analysis to identify their risk. This aspect is exacerbated due to a lack in literature about methods for risk management in SME, as stated by Henschel: The two challenging aspects with regard to risk management in SME are therefore:1. SME differ from large corporations in many characteristics2. The existing research lacks a focus on risk management in SMEThe following research question will be central to this work:1.how can SME manage their internal financial risk?2.Which aspects, based on their characteristics, have to be taken into account for this?3.Which mean fulfils the requirements and can be applied to SME? LITERATURE REVIEWIn contrast to larger corporations, in SME one of the owners is often part of the management team. His intuition and experience are important for managing the company.Therefore, in small companies, the (owner-) manager is often responsible for many different tasks and important decisions. Most SME do not have the necessary resources to employ specialists on every position in the company. They focus on their core business and have generalists for the administrative functions. Behr and Guttler find that SME on average have equity ratios lower than 20%. The different characteristics of management, position on procurement and capital markets and the legal framework need to be taken into account when applying management instruments like risk management. Therefore the risk management techniques of larger corporations cannot easily be applied to SME.In practice it can therefore be observed that although SME are not facing less risks and uncertainties than large companies, their risk management differs from the practices in larger companies. The latter have the resources to employ a risk manager and a professional, structured and standardized risk management system. In contrast to that, risk management in SME differs in the degree of implementation and the techniques applied. Jonen & Simgen-Weber With regard to firm size and the use of risk management. Beyer, Hachmeister & Lampenius observe in a study from 2010 that increasing firm size among SME enhances the use of risk management. This observation matches with the opinion of nearly 10% of SME, which are of the opinion, that risk management is only reasonable in larger corporations. Beyer,Hachmeister & Lampenius find that most of the surveyed SME identify risks with help of statistics, checklists, creativity and scenario analyses. reveals similar findings and state that most companies rely on key figure systems for identifying and evaluating the urgency of business risks. That small firms face higher costs of hedging than larger corporations. This fact is reducing the benefits from hedging and therefore he advises to evaluate the usage of hedging for each firm individually. The lacking expertise to decide about hedges in SME is also identified by Eckbo, According to his findings, smaller companies often lack the understanding and management capacities needed to use those instruments.METHODOLOGYUSE OF FINANCIAL ANALYSIS IN SME RISK MANAGEMENTHow financial analysis can be used in SME risk management?Development of financial risk overview for SMEThe following sections show the development of the financial risk overview. After presenting the framework, the different ratios will be discussed to finally present a selection of suitable ratios and choose appropriate comparison data. Framework for financial risk overviewThe idea is to use a set of ratios in an overview as the basis for the financial risk management.This provides even more information than the analysis of historical data and allows reacting fast on critical developments and managing the identified risks. However not only the internal data can be used for the risk management. In addition to that also the information available in the papers can be used.Some of them state average values for the defaulted or bankrupt companies one year prior bankruptcy -and few papers also for a longer time horizon. Those values can be used as a comparison value to evaluate the risk situation of the company. For this an appropriate set of ratios has to be chosen.The ratios, which will be included in the overview and analysis sheet, should fulfill two main requirements. First of all they should match the main financial risks of the company in order to deliver significant information and not miss an importantrisk factor. Secondly the ratios need to be relevant in two different ways. On the one hand they should be applicable independently of other ratios. This means that they also deliver useful information when not used in a regression, as it is applied in many of the papers. On the other hand to be appropriate to use them, the ratios need to show a different development for healthy companies than for those under financial distress. The difference between the values of the two groups should be large enough to see into which the observed company belongs.Evaluation of ratios for financial risk overviewWhen choosing ratios from the different categories, it needs to be evaluated which ones are the most appropriate ones. For this some comparison values are needed in order to see whether the ratios show different values and developments for the two groups of companies. The most convenient source for the comparison values are the research papers as their values are based on large samples of annual reports and by providing average values outweigh outliers in the data. Altman shows a table with the values for 8 different ratios for the five years prior bankruptcy of which he uses 5, while Porporato & Sandin use 13 ratios in their model and Ohlson bases his evaluation on 9 figures and ratios [10]. Khong, Ong & Yap and Cerovac & Ivicic also show the difference in ratios between the two groups, however only directly before bankruptcy and not as a development over time [9]. Therefore this information is not as valuable as the others ([4][15]).In summary, the main internal financial risks in a SME should be covered by financial structure, liquidity and profitability ratios, which are the main categories of ratios applied in the research papers.Financial structureA ratio used in many of the papers is the total debt to total assets ratio, analyzing the financial structure of the company. Next to the papers of Altman, Ohlson and Porporato & Sandin also Khong, Ong & Yap and Cerovac & Ivicic show comparison values for this ratio. Those demonstrate a huge difference in size between the bankrupt and non-bankrupt groups.Figure 1: Development of total debt/ total assets ratioData source: Altman (1968), Porporato & Sandin (2007) and Ohlson (1980), author’s illustrationTherefore the information of total debt/total assets is more reliable and should rather be used for the overview. The other ratios analyzing the financial structure are only used in one of the papers and except for one the reference data only covers the last year before bankruptcy. Therefore a time trend cannot be detected and their relevance cannot be approved.Cost of debtThe costs of debt are another aspect of the financing risk. Porporato & Sandin use the variable interest payments/EBIT for measuring the debt costs. The variable shows how much of the income before tax and interest is spend to finance the debt. This variable also shows a clear trend when firms approach bankruptcy.LiquidityThe ratio used in all five papers to measure liquidity is the current ratio, showing the relation between current liabilities and current assets (with slight differences in the definition). Instead of the current ratio, a liquidity ratio setting the difference between current assets and current liabilities, also defined as working capital, into relation with total assets could be used.Figure 2: Development of working capital / total assets ratioData source: Altman (1968) and Ohlson (1980); author’s illustratioBasically the ratio says whether the firm would be able to pay back all its’ current liabilities by using its’ current assets. In case it is not able to, which is when the liabilities exceed the assets, there is an insolvency risk.ProfitabilityFor measuring the firms’ profitability or productivity a wide range of ratios is used in the different papers. The ratio sales /total assets is used as well by as also Porporato & Sandin (they use total assets / sales, which can easily be transformed to be comparable) and therefore available as a time series.Figure 3: Development of sales / total assets ratioData source: Altman (1968) and Porporato & Sandin (2007), author’s illustratioThe remaining ratios measuring the last period’s profitability are net income / equity, EBIT /debt and net income or EBIT / total assets.The last groups of profitability ratios, which can be found in the literature, are those focusing on retained earnings of the firms. These measures show the cumulated profitability of the firm over time.Retained earnings ratios measure the buffer of funds the company was able to earn over time and which can be used in times of crisis to balance losses.译文中小企业的财务风险管理Omid Sharifi研究问题风险与经济活动是密不可分的。

THE BUSINESS SCHOOL FOR FINANCIAL MARKETSThe University of ReadingThe Present and Future of Financial Risk ManagementISMA Centre Discussion Papers in Finance 2003-1210 September 2003Carol AlexanderChair of Risk Management and Director of Research ISMA Centre, University of Reading, Whiteknights, P.O. Box 242, Reading RG6 6BA, UKPaper presented at the 1st International Derivatives and Financial Markets ConferenceOrganized by BM&FCampos de Jordao, Brazil, August 20th – 23rd , 2003Copyright 2003 Carol Alexander and BM&F Brazil. All rights reserved.The University of Reading • ISMA Centre • Whiteknights • PO Box 242 • Reading RG6 6BA • UKTel: +44 (0)118 931 8239 • Fax: +44 (0)118 931 4741Email: research@ • Web: Director: Professor Brian Scott-Quinn, ISMA Chair in Investment BankingThe ISMA Centre is supported by the International Securities Market AssociationAbstractAs a result of recent global trends in financial markets, financial institutions face important challenges in their management of risks. In particular, to develop an intelligent way to aggregate risks, and to develop management processes that cover the new types of risks that are becoming increasingly important. These new types of risks include operational, business and systemic risks. We show that current trends towards more accurate and timely assessments of risks could in fact pose a threat to the stability in financi a l markets. The root of this threat is in the homogeneity of both risk assessments and the objectives of risk control. At the level of the economy, heterogeneity in risk modelling (‘risk model risk’) and in the decisions made to control financial risks, are desirable. With this in mind, classical statistical techniques should be less prevalent in both risk assessment and risk control. Currently we are learning much from the quantitative assessment of operational risks, where a Bayesian view is essential. In the future, we welcome the emergence of a Bayesian approach to risk assessment, and a behavioural view of risk management and control.Contacting Author Details:Carol AlexanderISMA Centre, University of Reading, Whiteknights, Box 242, Reading, RG6 6BA,Tel: +44–118–378–6134; fax: +44–118–378–4741.E-mail address: c.alexander@AcknowledgementsI would like to thank Prof. Jose Carlos de Souza Santos of BM&F, Brazil, Dr. Mario Prado of Analitix, Brazil and Leonardo Nogueira of the ISMA Centre for providing the data on Brazilian equities and interest rates. Also many thanks to Anca Dimitriu of the ISMA Centre for optimising the hedge fund models on the Brazilian data, and to the Foundation for Managed Derivatives Research, for the research grant enabling the use of the HFR data set. Finally I would like to thank my husband, Dr. Jacques Pezier, also of the ISMA Centre, for his many insightful comments. Any errors or oversights are, of course, my own.This discussion paper is a preliminary version designed to generate ideas and constructive comment. Please do not circulate or quote without permission. The contents of the paper are presented to the reader in good faith, and neither the author, the ISMA Centre, nor the University, will be held responsible for any losses, financial or otherwise, r esulting from actions taken on the basis of its content. Any persons reading the paper are deemed to have accepted this.I The Present and Future of Risk ManagementAlthough financial risk management has existed as a discipline in its own right for less than 20 years, it is already an enormous subject. A modern day risk manager requires much more than a detailed knowledge of financial markets. Risk assessment in particular has become a statistical science – and art – and model validation requires an understanding of the complex mathematical models that are now used to price financial derivatives. Risk management is a main concern for the front and middle office functions of banks, and is becoming increasingly important for fund managers in the volatile financial markets of today.Given the comprehensive nature of the subject, I have been very selective in the topics covered here. The first part of this paper discusses the global trends in financial markets that have an impact on financial risk management at the level of the firm. I argue that the main challenges that financial institutions now face, as a result of these trends, are:• the proper aggregation of economic capital over all lines of businesses and over the major categories of risks• the development of risk management processes to cover new types of riskThe processes in risk management – identification, assessment, monitoring & reporting, and control – are then examined separately, to envision how these are likely to develop in response to these challenges over the next 10-20 years. More accurate and timely assessments of risks could pose a threat to the stability in financi al markets and we conclude that, at the level of the economy, heterogeneity in the assessment and control of risks is desirable. Consequently we envision the future of risk management as one in which a more ‘holistic’ approach is adopted: where all types o f financial risks are assessed using common risk factors, a common methodology and subjective, as well as objective data; and where the decisions made to control risks reflect the risk tolerance of the whole organisation.I.1 Current Trends in Financial Risk ManagementThree main global trends that can easily be identified in financial markets during the last few decades, and which have been a catalyst for change in risk management practices are: de-regulation of capital flows and financial operations, increasing banking supervision and regulation of firms, and technological advances.a. De-regulation o f Financial Markets: Limits on capital flows and operations have been raised, or removed. Capital flows have increased: for example, under the Bretton-Woods exchange system during the 1950s and 60s the convertibility of some major currencies such as Sterling was strictly limited. Also the scope of financial operations has widened: for example, some banks can now also offer insurance and insurance companies can, to some extent, write market and credit derivatives.b. Increasing Banking Supervision and Regulation: There has been a gradual extension of capital adequacy requirements to cover more types of risks: First credit risks (1988), then market risks (1996) and now operational risks (2004). Before the Basel I Accord in 1988, regulators required only limited reporting of risks and imposed only some simple credit limits. The Basel I Accord introduced the first capital requirements for banks, but the requirements were product based – mainly for loans – with no offsets, netting or market sensitivities. The Basel I Amendment (1996) and the forthcoming Basel 2 Accord (2004) have introduced quantitative measures for capital adequacy that are risk sensitive, but not overly reactive to short term fluctuations.c. Technological Advances: In particular, web and intranet based technology for improved communications, security and management of large databases (through Application Service Provider software), on-line trading, and standardised internet based order management.What are the likely effects of these trends, and what can we deduce about the associated trends in current risk management practices?Risk Aggregation:De-regulation of markets has the effect of grouping all financial services (Insurance, Asset Management, Banking) into ‘Universal’ banks. The convergence of services to these large complex banking groups means that we now need to examine the risks of the organization as a whole. Following regulatory changes, consolidated risk reporting has moved away from ‘product based’ capital requirements to ‘rules based’ capital requirements that may be uniformly applied across all subsidiaries in a large complex group. Also, recent technologicaladvances in firm wide risk management software for consolidated risk reporting now make it easier to take advantage o f new diversification opportunities. But with the need to net risks across the whole enterprise, come aggregation difficulties and reporting ambiguities. In the face of these problems, many large complex groups are now moving towards changing their subsidi aries from independent legal entities to branches that fall under the jurisdiction of the regulator of the head office. This is to avoid any confusion between local and central regulators about the responsibility for regulation, and increases the viability of the proper aggregation of risks.1Increasing Systemic Risk:Systemic risk may be defined as the risk of increased volatility leading to mass insolvencies in the banking and other sectors. Increased capital flows (resulting from the lifting of capital limits, the rapid dissemination of information, the faster transfers of funds, and the increasing popularity of technical trading strategies) are increasing volatility, particularly in equity and commodity markets. Coupled with the trend towards ‘real-time’ risk monitoring, panic reactions now threaten to de-stabilize the whole economy. If all risk managers receive the same signals at the same time, and re-act in a similar fashion, there is a considerable increase in systemic risk.Systemic risk is also affected by the concentration of key services (e.g. custody, or clearing and settlements) in the hands of very few firms. In the event of a crisis (e.g. 9/11, or a computer virus) an essential activity could be gravely affected, with catastrophic consequences. Primarily, this concentration of services is a result of greater competition, but increasing regulation of banking activities, and technological advances have also played an important role: until recently, some services such as agency and custody services, attracted no regulatory capital charges, but under the new Basel Accord this will change. When capital charges are imposed for these services, the best economic solution may be to out-source the service.Increasing Operational Risks:Operational risks have increased because of our increased reliance on technology, and to some extent because of the concentration of key services, and key individuals, in a few geographical locations. The increased complexity of financial instruments, with banks now1 If subsidiaries have to meet capital requirements on a solo basis, they must physically hold the necessary capital. Suppose risk is aggregated using correlations; then the total capital that must be held in the group that is sufficient to cover the firm-wide minimum capital can be much less than the sum of the capital in the subsidiaries.offering highly structured products having access to wide range of asset classes across the world, has also influenced several types of operational risks.With more complex instruments there is much less transparency in the trading, and an increase in: IT & systems risks because of the reliance on new and complex systems; products and business practice risks because of the danger of mis-pricing and mis-selling these products;and ‘human’ risks in general because now only a few experienced people understand the systems and the products.Increasing Business Risks:Business risk may be defined as the risk of insolvency due to inappropriate management decisions or external factors. Dis-intermediation has had a significant impact on business risk. Rather than relying on a bank for loans, many large companies now favour the direct insurance of debt by issuing bonds and equity. As the demand for loans declines but the need for corporate finance increases, banks now rely more on flow business – fees and commissions on services – for their income. This dis-intermediation has the effect of reducing market and credit risk for banks, but they now face more business risks. Mergers and acquisitions also affect business risk. The convergence of financial services into large, complex banking groups and the concentration of key services in the hands of a few firms have been a driving force behind the growing number of mergers and acquisitions.A case in point is Abbey National, now the 6th largest British bank, but originally just a building society (issuing mortgages). Having obtained a license for retail banking, it rapidly expanded its services to treasury operations – writing complex derivatives products – and to corporate finance. This lasted only a few years, until large losses recently revealed how the management had over-extended itself with these particular decisions.To summarize our main points, current trends in financial risk management are changing our perception of financial risks. In particular, operational, business and systemic risks are all becoming relatively more important, compared with the traditional market and credit risks. Furthermore, the move towards large complex global organizations and consolidated risk reporting has highlighted some important problems with current methods for risk aggregation.I.2 The Future of Financial Risk ManagementFinancial risk management has been defined as a sequence of four processes: Identification; Assessment; Monitoring & Reporting; and Control.2 Let us now consider each of these processes in turn, attempting to extrapolate the current trends identified above and hence envision some of the changes in financial risk management that are likely in the future.a. Identification:For the purpose of regulation, three broad categories of risks have been defined: market, credit and operational risks. But the coverage is uneven, with some important but less easily quantifiable risks simply ignored. Also, the boundaries between these categories are fuzzy (indeed some might even regard all risks as being operational risks!) and the industry has spent much time defining risks, and debating into which category a loss event falls. However, in the future, it is likely that these traditional boundaries will be relaxed, as large complex banking groups adopt a more ‘holistic approach’ to risk management.One motivating factor for adopting a more holistic approach to risk management is that ‘other risks’ such as business and systemic risks – which are currently ignored by the regulators – are likely to be perceived as being important in the future. Also, operational risks, which are currently perceived as less important than market and credit risks, are likely to increase, for example, because of increased reliance on technology. On the other hand credit risks, one of the major risks that we face today because currently we are at a peak of the default cycle, are likely to decrease in relative importance. So, as new, or previously less important risks take the centre stage, the need for a clear distinction between market, credit, operational and other risks dissolves.Current practice is to model the identified risks using completely different frameworks for different categories of risk. For example, we can employ a statistical anal ysis of short-term P&L distributions for market risks; an option theoretic models for credit risk; and an actuarial loss model for operational risks. But this is a great impediment to an important goal of enterprise wide risk management, that is, to ‘integrate’ market, credit and operational risks so that the net effect of a single scenario (such as a 200bp rise in an interest rate) can be assessed at the instrument level. Clearly, another factor which motivates the definition of all risks under one ‘umbrel la’ for the purpose of capital allocation, is that when market, credit2As in “Sound Practices for the Management and Supervision of Operational Risk”, the Basel Committee on Banking Supervision, December 2001, revised July 2002and operational risks are assessed using diverse methodologies, it becomes extremely difficult to perform a consistent scenario risk analysis across all three models.Even if market, credit and operational risks were assessed according to similar principles, the current methods used to aggregate distinct risk estimates are very imprecise. Simple summation provides a possible upper bound,3 and an assumption of zero correlation provides a possible lower bound for total risk (where the total risk is the square root of the sum of the component risks squared). But in some activities, such as interest rate swaps trading, market and credit risks can be negatively correlated, so the net risk could be less than some of the component risks. In this case even the zero correlation assumption is far too conservative.At present, risk assessment and aggregation methods do not properly account for the type of dependencies between risks that are known to exist. In searching for a better risk aggregation methodology, Alexander and Pezier (2003)4 have proposed a factor model approach to risk assessment. Market, credit and operational risks are assumed to be driven by common risk factors such as interest rates, equity prices, the implied volatilities of both, credit spreads, expenses and the business activity level. This approach is very much in its infancy, and the residual market/credit/operational risks are large; the factor model explains only a fraction of the economic capital estimates from individual VaR models. However, in a recent report from the Basel Committee on Banking Supervision, the pressing need for a unified framework such as this has been highlighted.5b. AssessmentLet us amuse ourselves here with a simple analogy. Risk management is like a cake. On the top we have a cherry – or several cherries – the risk assessment model(s); the icing on the cake represent the data used for model estimation and the substance of the cake itself represents the infra-structure – the systems and the management framework that are necessary to support the risk model.Since the industry has long ago agreed on the ‘best practice’ for market risk assessment (by simulating VaR using Monte Carlo data and historic data)6 we can regard market risk management as a cake with only one cherry. The market risk cake also has a relatively3 But not necessarily, since percentiles are not sub-additive4 Alexander, C. and J. Pezier (2003) “Assessment and Aggregation of Banking Risks” Presented to the 9th Annual IFCI Round Table, March 2003 (available from www.ifci.ch)5 Basel Committee for Banking Supervision (August 2003) “Trends in Risk Integration and Aggregation” available from 6 If the portfolio i s linear the Monte Carlo VaR should be equal to the ‘RiskMetrics’ or ‘Covariance VaR.smooth and complete icing, as the appropriate data are relatively easy to obtain, at least for most short-term market risks, compared with other risk types. Many powerful and sophisticated market risk systems are available, indeed, the cake itself is like a fine, English Christmas cake that has been matured in brandy wine for many years.However, the industry has not agreed on a singl e ‘best practice’ model for credit risk capital assessment.7 A bank will normally adopt one (or more) of the following three broad approaches: an option theoretic Merton model, an actuarial (loss model), or a macro-economic model. Within each broad approach, several variants might be available. In short, quite a few different ‘cherries’ are available for the credit risk cake and, without knowing which cherry is best, some banks decide to place them all upon the cake! The credit risk cake icing (the data) is also rather patchy in places – in particular, the marginal and joint distributions of default rates and recovery rates are extremely difficult to assess.Operational risk assessment is at an early stage of development, and the operational risk ‘cake’ is far from complete. First, we potentially have ‘one thousand’ cherries, haphazardly placed all over the cake.8 Secondly, the data are very incomplete, particularly for the important operational risks (the low frequency high impact risks) so there is hardly any icing for these cherries to stand upon. Finally, the substance of the operational risk cake itself is more or less non-existent: some banks have great difficulty obtaining the management ‘buy-in’ that they need for the self-assessment of operational risks, and the IT systems that are necessary to support the reporting and control of these risks are only just now being developed.Perhaps the most challenging task of all is to provide appropriate data for assessing operational risks. And, in this respect, the industry has at least seen some benefit from the expensive task of implementing an operational risk management framework. That is because we have learned an important lesson about market and credit risk assessment: the need for operational risk q uantification has forced the industry to consider using ‘subjective’ data for operational risks (in the form of self-assessments and/or expert opinions) and we now recognise that the problem of incomplete data extends to all types of risks, to a greater or lesser extent. With much historic data available for assessing market risks, risk managers have been lulled into a false sense of security, believing that it was possible to assess even long-term risks with some degree of accuracy. But now we are, quite rightly, beginning to7 Although a simple portfolio model is proposed in the Basel II ‘Internal Rating Based’ approach.8 The Basel working group on operational risk assessment have suggested that, for the Advanced Measurement Approaches, the industry should ‘let one thousand flowers bloom’.question the validity of historical data because it is not ‘forward looking’. It has become increasingly clear that ‘subjective’ data will improve and enhance our assessments of credit and market risks, as well as operational risks.9The use of data from different sources, based on both subjective beliefs and objective historical samples is not a new development. In fact, it is a very old science. Thomas Bayes, a seventeenth century English Presbyterian minister, laid the foundations for all modern statistical inference in his fanous essay ‘A Doctrine towards the Theory of Chance’. From Bayes’ ideas, the ‘classical’ statistics of today evolved as but a poor relative, a restricted form of Bayes’ original doctrine, and it is only during the last few years that the Bayesian approach has witnessed a renaissance.Thanks to Thomas Bayes, in place of a single VaR estimate, we have a whole VaR distribution, where the uncertainty of VaR arises from our ‘subjective beliefs’ about risk model parameter values. As a consequence of the move towards using more subjective data for risk assessments, there will be increased reliance in the future on sophisticated individual models for assessing market, credit and operational risks. It is only progressing from there – possibly far into the future – that our aim should be towards unification of these models into one ‘Universal VaR’ model.c. Monitoring and ReportingMonitoring and reporting may be the most important part of the risk management process for some activities, such as fund management. Fund managers need to take risks, rather than control them, but it is their duty to inform clients promptly and accurately of the risks that they take. However, this is not necessarily a ‘good thing’ from the perspective of systemic risk. In fact, good risk management at the level of the firm, as we know it today, can actually increase systemic risk!To see why, suppose good risk management means reducing exposure to risky assets and passing on the risk to others. Most pension funds, which have liabilities to current pensioners and risky assets comprising mainly bonds and equities, behave like this. If a market performs well, pension funds take more risk in that market, which produces an upwards price pressure; on the other hand, when a market under-performs, they sell off those risky assets. Suppose the price of some risky assets fall – let us say that equity prices go down. Those funds that have not performed well must maintain their solvency ratio and may therefore be forced to sell9 See Alexander, C. (ed) Operational Risks: Regulation, Analysis and Management FT-Prentice Hall (a division of Pearson Education), 2003.risky assets. Assuming they sell the assets that are under-performing, the price of these assets will be depressed even further. But now the next level of funds – which were not originally concerned by their solvency ratio – will be forced into selling assets. The vicious circle continues and a downwards spiral in prices has been instigated.In the past, this type of behaviour was observed in the ‘portfolio insurance’ strategies that were followed by pension funds during the late 1970’s and 1980’s. These strategies had a great run – until they contributed to the global equity market crash of 1987. More recently, a similar crisis happened to insurance companies after 09/11. However, this time the regulators relaxed solvency ratios and a global melt-down in equity markets was prevented.The growing trend towards real-time risk monitoring and reporting also tends to increase systemic risk. With real-time monitoring we are immediately aware of variations in the solvency ratio. Even if there is no breach of the minimum, just knowing VaR in real-time could produce a panic reaction when traders use VaR-based limits in place of the traditional sensitivity based limits. A VaR limit could be easily be breached intermittently in a particular activity and, when previously we wouldn’t know it, now with real-time VaR monitoring, we do. We may feel forced into selling, cutting down our positions in risky assets that have not performed well. We would have to take a capital loss, and of course this process will increase volatility in that asset. A vicious circle could be set in motion, where other risk managers now exceed their VaR limits and, if market participants all perceive the same danger at the same time and they all act in the same way, systemic risk will increase.10d. ControlIf all risk managers are aware of all risks, at all times, this does not necessarily imply that risks will be reduced. It all depends on the risk control strategies. Decisions about risk control are best taken at the senior management level in the organisation. Only in that case will the decision maker be able to take advantage of opportunities for diversification of risks. It is important that the monitoring and reporting of risks be independent of the decisions made to control the risk.Efficient global hedging of risks should mean that the decision maker can choose to increase some risks, if it benefits the organization as a whole. However in the current system, junior managers normally ‘own’ risks at the same time as monitoring and reporting them, and10 In an attempt to prevent daily variation coming into play in this way, regulator introduced the rule that VaR = max(average of last 60 days VaR, or latest VaR * k). Economic capital calculations may not be calculated like this, in which case internal panic reactions can still be a problem.having the power to make decisions about the control of these risks. These people are often rewarded on an individual basis, usually for reducing their ‘own’ risks, regardless of the effect on other risks within the organisation. It is therefore highly unlikely that efficient global hedging can be done for the enterprise as a whole. Risk control should be based on a business model, a decision theoretic framework that takes into account major costs and benefits to the global enterprise. In this sense, the role of risk control should be no different from the traditional management role.II A Study of Risk Management in the Brazilian MarketsMarket, credit and operational Value-at-Risk (VaR) models are being continuously refined and improved by academic research. In some cases these advances serve to make the risk model more complex, for example because they are based on more general assumptions; in other cases a risk model can be much simplified, for example because a unified framework, or new insights, have been developed.The second part of this paper examines the application of some new, advanced risk models to Brazilian equities and interest rates. Section II.1 simply introduces the data used in this study, then section II.2 will focus on model risk. Here we provide two examples of model risk in VaR models, based on our Brazilian market data. We ask whether VaR models are, in fact, appropriate for the assessment of market risks in Brazil. Section II.3 examines the dependencies between risks that need to be accounted for in portfolio models. We show that dependencies within Brazilian interest rates and within Brazilian equities are highly non-linear, so correlation is an inappropriate tool for the risk management of portfolios. Section II.4 successfully applies some new hedging models to Brazilian equities in the Ibovespa index, including a method that is based on ‘cointegration’ rather than correlation.。

中英文资料翻译Financial Risk ManagementAlthough financial risk has increased significantly in recent years, risk and risk management are not contemporary issues. The result of increasingly global markets is that risk may originate with events thousands of miles away that have nothing to do with the domestic market. Information is available instantaneously, which means that change, and subsequent market reactions, occur very quickly. The economic climate and markets can be affected very quickly by changes in exchange rates, interest rates, and commodity prices. Counterparties can rapidly become problematic. As a result, it is important to ensure financial risks are identified and managed appropriately. Preparation is a key component of risk management.What Is Risk?Risk provides the basis for opportunity. The terms risk and exposure have subtle differences in their meaning. Risk refers to the probability of loss, while exposure is the possibility of loss, although they are often used interchangeably. Risk arises as a result of exposure.Exposure to financial markets affects most organizations, either directly or indirectly. When an organization has financial market exposure, there is a possibility of loss but also an opportunity for gain or profit. Financial market exposure may provide strategic or competitive benefits.Risk is the likelihood of losses resulting from events such as changes in market prices. Events with a low probability of occurring, but that may result in a high loss, are particularly troublesome because they are often not anticipated. Put another way, risk is the probable variability of returns.Since it is not always possible or desirable to eliminate risk, understanding it is an important step in determining how to manage it. Identifying exposures and risks forms the basis for an appropriate financial risk management strategy.How Does Financial Risk?Financial risk arises through countless transactions of a financial nature, including sales and purchases, investments and loans, and various other business activities. It can arise as a result of legal transactions, new projects, mergers and acquisitions, debt financing, the energy component of costs, or through the activities of management, stakeholders, competitors, foreign governments, or weather. When financial prices change dramatically, it can increase costs, reduce revenues, or otherwise adversely impact the profitability of an organization. Financial fluctuations may make it more difficult to plan and budget, price goods and services, and allocate capital.There are three main sources of financial risk:1. Financial risks arising from an organization’s exposure to changes in market prices, such as interest rates, exchange rates, and commodity prices.2. Financial risks arising from the actions of, and transactions with, other organizations such as vendors, customers, and counterparties in derivatives transactions3. Financial risks resulting from internal actions or failures of the organization, particularly people, processes, and systemsWhat Is Financial Risk Management?Financial risk management is a process to deal with the uncertainties resulting from financial markets. It involves assessing the financial risks facing an organization and developing management strategies consistent with internal priorities and policies. Addressing financial risks proactively may provide an organization with a competitive advantage. It also ensures that management, operational staff, stakeholders, and the board of directors are in agreement on key issues of risk.Managing financial risk necessitates making organizational decisions about risks that are acceptable versus those that are not. The passive strategy of taking no action is the acceptance of all risks by default.Organizations manage financial risk using a variety of strategies and products. It is important to understand how these products and strategies work to reduce riskwithin the context of the organization’s risk tolerance and objectives.Strategies for risk management often involve derivatives. Derivatives are traded widely among financial institutions and on organized exchanges. The value of derivatives contracts, such as futures, forwards, options, and swaps, is derived from the price of the underlying asset. Derivatives trade on interest rates, exchange rates, commodities, equity and fixed income securities, credit, and even weather.The products and strategies used by market participants to manage financial risk are the same ones used by speculators to increase leverage and risk. Although it can be argued that widespread use of derivatives increases risk, the existence of derivatives enables those who wish to reduce risk to pass it along to those who seek risk and its associated opportunities.The ability to estimate the likelihood of a financial loss is highly desirable. However, standard theories of probability often fail in the analysis of financial markets. Risks usually do not exist in isolation, and the interactions of several exposures may have to be considered in developing an understanding of how financial risk arises. Sometimes, these interactions are difficult to forecast, since they ultimately depend on human behavior.The process of financial risk management is an ongoing one. Strategies need to be implemented and refined as the market and requirements change. Refinements may reflect changing expectations about market rates, changes to the business environment, or changing international political conditions, for example. In general, the process can be summarized as follows:1、Identify and prioritize key financial risks.2、Determine an appropriate level of risk tolerance.3、Implement risk management strategy in accordance with policy.4、Measure, report, monitor, and refine as needed.DiversificationFor many years, the riskiness of an asset was assessed based only on the variability of its returns. In contrast, modern portfolio theory considers not only an asset’s riskiness, but also its contribution to the overall riskiness of the portfolio towhich it is added. Organizations may have an opportunity to reduce risk as a result of risk diversification.In portfolio management terms, the addition of individual components to a portfolio provides opportunities for diversification, within limits. A diversified portfolio contains assets whose returns are dissimilar, in other words, weakly or negatively correlated with one another. It is useful to think of the exposures of an organization as a portfolio and consider the impact of changes or additions on the potential risk of the total.Diversification is an important tool in managing financial risks. Diversification among counterparties may reduce the risk that unexpected events adversely impact the organization through defaults. Diversification among investment assets reduces the magnitude of loss if one issuer fails. Diversification of customers, suppliers, and financing sources reduces the possibility that an organization will have its business adversely affected by changes outside management’s control. Although the risk of loss still exists, diversification may reduce the opportunity for large adverse outcomes.Risk Management ProcessThe process of financial risk management comprises strategies that enable an organization to manage the risks associated with financial markets. Risk management is a dynamic process that should evolve with an organization and its business. It involves and impacts many parts of an organization including treasury, sales, marketing, legal, tax, commodity, and corporate finance.The risk management process involves both internal and external analysis. The first part of the process involves identifying and prioritizing the financial risks facing an organization and understanding their relevance. It may be necessary to examine the organization and its products, management, customers, suppliers, competitors, pricing, industry trends, balance sheet structure, and position in the industry. It is also necessary to consider stakeholders and their objectives and tolerance for risk.Once a clear understanding of the risks emerges, appropriate strategies can be implemented in conjunction with risk management policy. For example, it might bepossible to change where and how business is done, thereby reducing the organization’s exposure and risk. Alternatively, existing exposures may be managed with derivatives. Another strategy for managing risk is to accept all risks and the possibility of losses.There are three broad alternatives for managing risk:1. Do nothing and actively, or passively by default, accept all risks.2. Hedge a portion of exposures by determining which exposures can and should be hedged.3. Hedge all exposures possible.Measurement and reporting of risks provides decision makers with information to execute decisions and monitor outcomes, both before and after strategies are taken to mitigate them. Since the risk management process is ongoing, reporting and feedback can be used to refine the system by modifying or improving strategies.An active decision-making process is an important component of risk management. Decisions about potential loss and risk reduction provide a forum for discussion of important issues and the varying perspectives of stakeholders.Factors that Impact Financial Rates and PricesFinancial rates and prices are affected by a number of factors. It is essential to understand the factors that impact markets because those factors, in turn, impact the potential risk of an organization.Factors that Affect Interest RatesInterest rates are a key component in many market prices and an important economic barometer. They are comprised of the real rate plus a component for expected inflation, since inflation reduces the purchasing power of a lender’s assets .The greater the term to maturity, the greater the uncertainty. Interest rates are also reflective of supply and demand for funds and credit risk.Interest rates are particularly important to companies and governments because they are the key ingredient in the cost of capital. Most companies and governments require debt financing for expansion and capital projects. When interest rates increase, the impact can be significant on borrowers. Interest rates also affect prices in otherfinancial markets, so their impact is far-reaching.Other components to the interest rate may include a risk premium to reflect the creditworthiness of a borrower. For example, the threat of political or sovereign risk can cause interest rates to rise, sometimes substantially, as investors demand additional compensation for the increased risk of default.Factors that influence the level of market interest rates include:1、Expected levels of inflation2、General economic conditions3、Monetary policy and the stance of the central bank4、Foreign exchange market activity5、Foreign investor demand for debt securities6、Levels of sovereign debt outstanding7、Financial and political stabilityYield CurveThe yield curve is a graphical representation of yields for a range of terms to maturity. For example, a yield curve might illustrate yields for maturity from one day (overnight) to 30-year terms. Typically, the rates are zero coupon government rates.Since current interest rates reflect expectations, the yield curve provides useful information about the market’s expectations of future interest rates. Implied interest rates for forward-starting terms can be calculated using the information in the yield curve. For example, using rates for one- and two-year maturities, the expected one-year interest rate beginning in one year’s time can be determined.The shape of the yield curve is widely analyzed and monitored by market participants. As a gauge of expectations, it is often considered to be a predictor of future economic activity and may provide signals of a pending change in economic fundamentals.The yield curve normally slopes upward with a positive slope, as lenders/investors demand higher rates from borrowers for longer lending terms. Since the chance of a borrower default increases with term to maturity, lenders demand to be compensated accordingly.Interest rates that make up the yield curve are also affected by the expected rate of inflation. Investors demand at least the expected rate of inflation from borrowers, in addition to lending and risk components. If investors expect future inflation to be higher, they will demand greater premiums for longer terms to compensate for this uncertainty. As a result, the longer the term, the higher the interest rate (all else being equal), resulting in an upward-sloping yield curve.Occasionally, the demand for short-term funds increases substantially, and short-term interest rates may rise above the level of longer term interest rates. This results in an inversion of the yield curve and a downward slope to its appearance. The high cost of short-term funds detracts from gains that would otherwise be obtained through investment and expansion and make the economy vulnerable to slowdown or recession. Eventually, rising interest rates slow the demand for both short-term and long-term funds. A decline in all rates and a return to a normal curve may occur as a result of the slowdown.财务风险管理尽管近年来金融风险大大增加，但风险和风险管理不是当代的主要问题。