Risk Management Analysis Essay -- Business Management

This assignment will discuss the theoretical basis of fiscal lay on the line, because managers need to be aware that financial risk its present in all sectors of activity so that they can run business efficiently and take advantageous investment choices, considering the different types of financial risk relevant to the current economic climate, as well as evaluating the methods available to business for managing, and by observing a case study where risk management has possibly failed. Risk is the doubt about future gains or losses, thus such doubts reveal that some future expectation and their impact cannot be predicted Chorafas (2008). Markowitz cited in Brigham, Gapenski and Ehrhardt (1999), argues that the portfolio theory can get high expected returns on investment with low levels of risk. therefore, risk can be spread and consequently eradicated so does not concern investors, thus the only worrying risk for managers , is the market risk which cannot be eliminated. However, Arnold (2002), suggest that this fails to assert that portfolio risk does not need to be considered, thus resulting with a problem with the theory, because it uses historic data returns to support decision making about potential investments, and as risk is about uncertainty is operose to calculate future events, therefore this theory may have gaps.Alternatively Brigham et al. (1999), argues that the CAPM model establishes a causal relation between risk and return on assets, where investors have the same expectations about the expected return and there are no transaction costs and taxes. However, Pike and Neale (1999) suggest that some concerns may reach related to the validity of this model because there are transaction costs and taxes which are sources o... ...Hillson, D., & Murray-Webster, R. (2007). Understanding and Managing Risk Attitude. ( 2nd ed.). England Gower Publishing Limited.Hamada, R. S., Bain, G., & Gerrity, T. P. (1998). Mastering pay single-source guide to bec oming a master of Finance. England Pearson education monetary Times/Prentice Hall. Neale, B., & McElroy, T. (2004). Business Finance A Value-Based Approach. England Pearson Education Financial Times/Prentice Hall.Pike, R., & Neale, B.(1999). Corporate finance and investment decisions and strategies. London New York Prentice Hall.Voon-Choony, Yap., Hway-Boon, Ong., Kok-Thim, Chan., & Yueh-Sin, Ang. (2010). European Journal of Economy Finance and Administration Science. Factors Affecting banking companys Risk Expoujiusure Evidence from Malaysia. Issue 19, retrieved from http//www.eurojournals.com/ejefas_19_09.pdf