Risk management: a brief overview
There are diverse forms of risk management in the world of finance. For individual investors, risk management can be involved in the decision to purchase low risk government securities, rather than high-yield corporate bonds. On a more complicated level, it can be related to trading in different derivative types, to achieve hedging in the event of wide swings in investment portfolios.
Financial derivatives, such as options and futures, and strategies including diversifying of portfolios, are commonly used by both companies and investors as financial instruments for mitigating risk or effective risk management.
In the world outside the financial sector, risk management is also employed to organize and operate different activities and diminish the potentials for accidents, losses, or catastrophes. Examples are risk management related to traveling abroad, or to the designing of safe buildings and safe products. Purchasing insurance is the most common example of risk management. In managing risk, plans are drawn up to revert to normal activity in the shortest term after an accident or another bad event.
