Over the last couple of years, the financial services industry has undergone significant transformation due to factors including business model transformation, adoption of advanced technologies, changing regulatory environments, and more. In an increasingly complex environment of the financial services industry, new complexities arise, requiring an adjustment in risk management systems and procedures. Market risks in the financial sector can potentially cripple the business if not managed on time. Therefore, it is imperative for companies in the financial sectors to implement market risk analysis and management strategies to identify potential risks in advance, analyze them, and take steps to eliminate them.
The client, a financial services provider wanted to develop market risk management strategies to manage risks affecting the growth of the industry. Changes in market variables, including interest rate and exchange rate fluctuations, as well as movements in market prices of securities and financial derivatives created risks that negatively impacted the financial capital of the client. Also, these market risks affected the company’s bottom line. Hence, the client approached Infiniti Research to leverage their expertise in offering market risk analysis solutions. With Infiniti’s market risk analysis solution, the client wanted to develop a comprehensive and dynamic framework for monitoring, measuring and managing liquidity, interest rate, foreign exchange, and commodity price risks.
With years of expertise in offering actionable market risk analysis solutions, the experts at Infiniti Research helped the client devise an effective market risk management strategy. A three-step approach was adopted to transform processes and improvise strategies associated with market risk analysis. It also involved examining changes in market variables, including interest rate and exchange rate fluctuations, as well as movements in market prices of securities and financial derivatives. Our experts also analyzed historical records to predict when the market fluctuations and disruptions were about to occur. This helped the client to create proactive and reactive methods that can prevent market risks from impacting the security of the organization.
This highly focused approach helped the client to build strategic market risk management strategies that minimized the probability of the problem occurring again. Furthermore, implementing risk management strategy reduced the loss in profit for the client. In a span of seven months, the market risk analysis helped the company to successfully reduce their financial costs and achieve savings of US $4.7 million.
What is Market Risk Analysis?
Market risk analysis is the process of evaluating and managing the potential risks in the market that negatively impacts the organization. Market risk analysis helps organizations understand the potential risk factors affecting their business and implement strategies to reduce them. The market risk analysis strategy gives an idea of the potential risks/events and the time needed to recover and restore operations. Thus, having a robust market risk analysis strategy allows businesses to prepare themselves financially for the most likely problems.
How to do a Risk Assessment?
What are the Types of Market Risks?
There are several major types of market risks. Let’s have a look at some of them:
Equity risks: Equity price risk refers to the risk arising from the volatility in the stock prices.
Interest rate risk: Risks arising from unpredictable interest rate changes. The prices of most assets are sensitive to changes in interest rates.
Exchange rate risk: Exchange rates can change rapidly as they are affected by a wide range of political and economic conditions. Many businesses have exposure to interest rates both in terms of costs and revenue sources. As a result, changes in exchange rates can lead to volatility in a company’s margins and profitability.
Commodity risk: Commodity price risk refers to the risk of unexpected changes in a commodity price.
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