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11 Cards in this Set

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  • Back

What is Risk appetite?

Risk appetite is the amount of risk an organisation is willing to accept in pursuit of value.

Financial risks relating to the financial operation of an entity what does it included?

Credit risk

Currency risk

Interest-rate risk

Liquidity risk

What is Credit risk:

Credit risk: Possibility that a loss may occur from the failure of another party to perform according to the terms of a contract.

what is Currency risk:

Risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates (IAS 32).

What is Interest-rate risk:

Risk that interest rate changes will affect the financial well-being of an entity.

What is Liquidity risk:

Risk that an entity will encounter difficulty in realising assets or otherwise raising funds to meet commitments associated with financial instruments — this is also known as funding risk

Interest rate pose risk to debtor only?

Incorrect a creditor may lose advantage with unfavourable interest rate changes

Interest rate pose risk to floating interest rate?

Incorrect fixed rate may lose advantage with unfavourable interest rate changes

Translation risk is only concerned with accounting numbers. It does not affect the cash flows of the entity.

So what's the risk

Changes in currency cause financial statement to appear unfavourable and affect investment and debt agreements

what is Transaction risk?

Transaction risk occurs from the effect of changes in nominal exchange rates on the company's contractual cash flows in foreign currencies. It relates to contracts already entered into but are yet to be settled.

what is Economic risk?

The degree to which the value of the firm's future cash flows can be influenced by exchange rate fluctuations.