The Importance of Using Financial Risk Management Software to Protect Against Financial Loss
Category: Financial Risk Management | Feb 19, 2009 |
With the economy performing the worst it has since the great depression, and the US Government having to spend trillions of tax payer dollars to bail out investment banks and insurance companies, it is clear that far more effective risk management practices must be put into place. It is absolutely sickening that hard working US taxes payers are stuck flipping the bill to save greedy investment banks and insurance companies that invested foolishly with money they were entrusted to protect.
Public companies must adhere to strict financial risk management practices so they are not allowed to make high risk investment decisions that can lead to huge losses. We cannot repeat the financial meltdown we are experiencing now in 2008, especially since it was caused by greed.
What is even more disappointing about the financial crisis we are in is it could have been avoided. There are many outstanding financial risk management software applications available that can protect against making bad investment decisions that can lead to great losses.
So, the question is, what is financial risk and how is it measured?
Financial risk is the probability that an investment’s actual return will be different than expected. This includes the possibility of losing some or all of the financial value of a particular investment.
Now here is where investing gets tricky. It is known that the more risk you take, the more potential there is for a large gain. However, the more risk you take, the more potential there is for a huge loss. This is where greed can become very dangerous. One of the main reasons we are experiencing the financial disaster we are in right now is from investment banks and insurance companies investing in high risk consumer mortgages. They took the risk that they would earn a large return from offering high interest mortgages to people with poor credit. They also took a huge risk by allowing consumers to take out zero money down mortgages and interest-only mortgages.
Where the problem occurred is that a greater than expected percentage of consumers who received these mortgages could not pay them. And if people are not paying their mortgages, the investment loses value and causes financial losses. With advanced risk management software, investors would have been alerted that the potential for loss with these high risk mortgages was great and that the investor should be very aware that making these investments could lead to a huge loss.
The purpose of financial risk management software is to protect against making bad investment decisions that may lead to a large financial loss. It does this by estimating the how much risk is being taken for a particular investment choice and how much money could be lost if the investment loses value.
Here are a few advanced methods financial risk management software uses to calculate risk:
1. Measure value at risk (VaR). VAR is a technique that uses the statistical analysis of historical market trends and volatilities to estimate the likelihood that a given portfolio’s losses will exceed a certain amount. It can be thought of as the worst loss that might be expected from holding a particular investment over a specific period of time.
2. Monte Carlo. This is a problem solving technique used to approximate the probability of certain outcomes by running multiple trial runs, called stimulations, by using random variables.
Watch the video related to financial risk
Complete video at: fora.tv Satirical author Max Barry discusses a hypothetical game where players risk losing $10 to earn $10.10, which he explains is actually a losing proposition. He argues that making those kinds of investments are what led to the recent financial crisis, and that buying a lottery ticket would have been a better investment. —– Bestselling satirical novelist Max Barry explains how our attitudes toward risk both define and confine us. He uses the mishandling of financial …
Help answer the question aboutfinancial risk
personal financial risk of offering stock trading tips on the internet?If i want to start my own website offering stock tips for a monthly subscription, what if any is my own personal financial risk. I can see someone blaming me for losing money. How could i protect myself.
Hai ragione. You’re right, that’s the easiest way. The difficult part is honestly convincing people to give you money (indeed, even doing it dishonestly it’s not that easy).
Nah…if you want to get rich you have to take a risk with someone elses money.
It also tells you that “You have to have money to win money.”
In other words: If you want to be rich you gotta risk. Safety of investments assures only that you will not gain money.
Opening a restaurant in a western country implies a probability of about 60 % of going belly up in the first two years. That’s definetely a worst bet than the 10 vs the 10.10 $ of the example. I guess statistics about almost all entrepreneurial ventures are worst then the aforementioned example.
The fact is that if we stick to strictly mathematical principles our society would get paralized. It’s also the reason statisticians are not known for being rich guys.
Well said, I really like this author
If you have researched your idea or career change that you speak of thoroughly and weighed the pros & cons and you still feel it in your gut that you should do it, then I say just go for it.
So many people simply stay stuck in the same mediocre place their entire lives, simply because they are afraid to make a change. But in all honesty, if you want a better life then you must change what you are doing today.
I love the quote, "If you continue to do what you've always done, You'll continue to get what you've always got."
The only other thing I would suggest is to consider what is the worst that could happen? There are many people who are extremely wealthy today but when they first started out, may have lost everything they had and then some more than once. They simply continued to do what they felt they needed to and I assure you, your diligence and hard work will pay off.
Change is uncomfortable for almost everyone, but it's those who face it head on, who go on to live the life they choose, rather than the one someone else has laid out for them.
I hope this helps somewhat. And I wish you the best in your venture! Good Luck!
You need a disclaimer. Look at some of the other services that do similar things. Read the disclaimer they offer. Print it out and take it to your lawyer. If you do this without legal help your nuts and just asking for trouble. There may also be rules about offering advice and then trading on the stocks you have been promoting or poo pooing. So there may also be restrictions on your own trading.
Paranoid. That's what I think.
It's one thing to not take out a credit card. People build their credit history in other ways, like paying their bills on time. And you can get a loan these days without a credit history. You just need a good savings history to show that you are good with money.
However, someone who is so afraid of investing their money that they don't, is quite stupid. That is like staying at home and not working because you might get hit by a car if you leave the house. These people have completely unrealistic concepts of investment and risk, and choose not to educate themselves. As a result, the pathetic earnings on their savings soon falter against inflation, meaning they're saving money which is becoming worthless nearly as soon as they save it.
Finance might be a bit 'hard' and 'mathsy', but so is cooking when you first learn, and most people persevere enough to learn how to make Cheese on Toast or instant noodles. You only need a tiny bit of knowledge, gained at very little effort, to make huge differences to your finances. But a lot of people are just too lazy to take this tiny step. So they have no money. If you refuse to learn how to do something because it takes effort, you need to face the consequences. But some people would be happier watching "Dancing With The Stars" and reading crappy romance novels than spending perhaps 5 minutes out of an entire year changing their lives. Charles Darwin was right. It's survival of the fittest.
Best wishes
Being watchful and observant at all times. Thieves don't usually walk in with ski masks – they are often perfectly regular looking people who rob stores by shoplifting. Checking for risk factors – like people who look over their shoulder or have a bag that is significantly bulkier after they went into a bathroom or dressing room is key. It is also important to watch out for people who may be slipping things into their purse or pockets as they shop. Another thing is to make sure not to stereotype people. Shop lifters can come in all shapes and sizes.
The risk free rate isn't dependent on an individual risky entity. It is derived from the yield on U.S. government securities, which are considered risk free. Therefore, the rate added above and beyond (spread) the risk free rate is used to determine metrics for a firm.
i don't know about that, but, make sure to check out TED DREW'S frozen custard there on Grand Blvd. or Chippewa. That's what i miss the most from home. (St. Louis)