Please discuss and show approaches, models and instruments for an enterprise to cope with risks in financial terms and show practical examples how an adequate risk management can be organised‪.‬

The term “ risk” as it is used in this paper, can be understood as the negative discrepancy between a forecast and the reality. Risk management, especially financial risk management, should be distinguished from other uses of the expression and can be defined as:

? Practices by which a company optimizes the manner in which it takes financial risks. Risk management does not mean that risk is in some way or another optimized. That is more the field of the board of directors. Also, according to the definition, risk management is not about mananging something, instead, it is really about facilitating. It is more a question of being aware which types of risk you have to take and make those risks transparent, than to avoid them. Often, if you want to achieve your earning goals this assumes taking some kind of risk. Especially in these times of high competition there is a big impact of taking risks and strengthening your revenues.

Managing risks is an old attribute of the human race. In our day-to-day life, we seem always worried about future risks. As a result, we end up investing in insurance or other investment instruments to secure ourselves against those unseen risks. For example, accidents, environmental disasters, bankruptcy are risks that have plagued us since time immemorial. Generally, we cannot reach a complete protection against any upcoming risk, but we can adopt appropriate proactive measures to mitigate every risk1. The risk management as it is understood nowadays has largely emerged during the early 1990’s. By looking back into the past, we can consider that the root cause for the major banking disasters was a poor management of credit risk. Taking and managing risk is a certain part of what companies must do to create profits and maximise shareholder value, which is recognised as an important objective of financial and corporate management these days. The market value states the overall value in a monetary unit of a specific company or a financial portfolio. The market value is threatened by forces like future cash flows, estimated dividends or returns on investment as well as through credit risk, market risk and operational risk. Referring to a study of McKinsey there seems to be a lack of awareness on the side of some companies.