Total risk is an overall assessment that identifies, searches for all the risks associated with the implementation of a specific action. Total risk is a combination of systemic risk and non-systemic risk. This also applies to potential external and internal threats. The identification of these risks requires a complete risk assessment, which offers an all-encompassing picture of potential threats. The organisation should have to check all risk aspirations in order to make the best possible decision. From the perspective of unity, the overall risk is determined by the organisation's approach to aspects such as planning of activities, allocation of budget and expenditure, and regulatory correctness.
There are two key risks on the financial market, these are market and credit risk. Market risk results from constant changes in assets on the market. It mainly concerns financial undertakings. The main types of this term include:
- interest rate ration- it results from continuous interest rate modifications and changes in the prices of financial instruments that are secondary to the level of these rates
- exchange rate risk- results from uncontrolled changes in exchange rates,
- share price risk-
it is followed by changes in share prices and their financial instruments for which the share price is based,
- the risk of commodity prices-
the risk results from continuous changes in commodity prices that occurs on financial markets,
- real estate price risk- it results from changes in the prices of property, possessions, plots and real estate in general.
Credit risk refers to the threat of insolvency of funds by an entity obliged to pay a debt. The risk of default is typical for the debt securities market .
Total risk control vs Total risk management
The management process and risk control itself are two different deadlines. The main task of financial managers is managing portfolios on the financial market. They are appropriately rewarded for taking and assessing the total risk. Persons responsible for the observation and control of the risk group will declare their portfolio in the financial market strive to minimize or completely exclude all possible loss-seeking situations. It is recommended to use different measurements of total risk to explain the embarrassing situation.
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Author: Klaudia Rodak