Risk Management

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An organized method of identifying and measuring risk and developing, selecting, and managing options for handling these risks.

In the corporate world, Risk Management is likely to have one of two meanings.

Risk Management can be viewed as an insurance related activity. A corporate risk manager, having performed the functions in the opening paragraph, will liaise with brokers and underwriters to ensure there is proper insurance coverage in place. Similarly, the decision may be made to "Self Insure", which means to not have insurance.

Another frequently encountered meaning of Risk Management refers primarily to corporate treasury matters, wherein the risk manager attempts to identify and mitigage those risks that occur from dealing in foreign currencies and interest bearing instruments. As both exchange rates and interest reates can be very volatile, such risks can be significant. Normally such risks are reduced through the purchase of forward contracts or swaps.