Market and credit risk in rish managment

Market and credit risk in rish managment

Market risk Market risks are considered one of the most important types of financial risks, as they are characterized by their wide scope, as a result of the dynamics of supply and demand. Market risk arises from potential losses due to changes in market prices, such as interest rates, exchange rates, commodity prices and stock prices. Market risks occur largely due to economic instability, which may affect the performance of all companies, not just one company. To further explain, the importing company is exposed to market risk when it pays its supplies in dollars and then sells the finished product in local currency. If the value of the currency declines; This company may incur losses that prevent it from meeting its financial obligations.

Market risks are divided into two types: Directional risk: This type of risk results from changes in stock prices and loan interest rates. Non-directional risks: These are risks associated with volatility risks, such as unexpected changes in the price of the underlying asset, such as stocks, bonds, and commodities. Credit risk This type of risk arises as a result of the company's inability to fulfill its obligations towards its counterparts, who are individuals participating in an investment, credit, or trade deal, and includes the risks of default or non-payment by borrowers, bond issuers, or counterparties in financial transactions. It also includes the risk of a credit rating downgrade, which leads to a decline in the value of debt securities.   These risks are classified into the following: Sovereign risks: These are the risks resulting from foreign exchange policies that are difficult to implement. Settlement risks: These are the risks resulting from the commitment of one party but not the other.