Risk investment

1 the action or process of investing money for profit.

"a debate over private investment in road-building"
synonyms: investing, speculation;
expenditure, outlay, funding, backing, financing, underwriting;
buying shares
"you can lose money pretty fast by bad investment"
stake, share, portion, interest, money/capital invested;
informalante
"an investment of £305,000"
 a thing that is worth buying because it may be profitable or useful in the future.
"freezers really are a good investment for the elderly"
synonyms: venture, speculation, risk, gamble; More
 an act of devoting time, effort, or energy to a particular undertaking with the
expectation of a worthwhile result.
"the time spent in attending the seminar is an investment in our professional futures"
synonyms: sacrifice, surrender, foregoing, loss, relinquishment, forfeiture
"a substantial investment of time and energy"
2. 2.
ARCHAIC
the surrounding of a place by a hostile force in order to besiege or blockade it.

9 types of investment risk

1. Market risk
The risk of investments declining in value because of economic developments or other events that affect
the entire market. The main types of market risk
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are equity risk

, interest rate risk

and currency risk

Equity

risk – applies to an investment

in shares. The market price

of shares varies all the time depending on demand and supply. Equity risk is the risk of loss because of a
drop in the market price of shares.

Interest rate

risk – applies to debt

investments such as bonds. It is the risk of losing money because of a change in the interest rate. For
example, if the interest rate goes up, the market value

of bonds will drop.

Currency risk – applies when you own foreign investments. It is the risk of losing money because of a
movement in the exchange rate

. For example, if the U.S. dollar becomes less valuable relative to the Canadian dollar, your U.S. stocks
will be worth less in Canadian dollars.

2. Liquidity risk

The risk of being unable to sell your investment at a fair price and get your money out when you want
to. To sell the investment, you may need to accept a lower price. In some cases, such as exempt market
investments, it may not be possible to sell the investment at all.

3. Concentration risk

The risk of loss because your money is concentrated in 1 investment or type of investment. When you
diversify your investments, you spread the risk over different types of investments, industries and
geographic locations.
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4. Credit risk

The risk that the government entity or company that issued the bond

will run into financial difficulties and won’t be able to pay the interest or repay the principal

at maturity. Credit risk

applies to debt investments such as bonds. You can evaluate credit risk by looking at the credit rating

of the bond. For example, long-term

Canadian government bonds have a credit rating of AAA, which indicates the lowest possible credit risk.

5. Reinvestment risk

The risk of loss from reinvesting principal or income at a lower interest rate. Suppose you buy a bond
paying 5%. Reinvestment risk

will affect you if interest rates drop and you have to reinvest the regular interest payments at 4%.
Reinvestment risk will also apply if the bond matures and you have to reinvest the principal at less than
5%. Reinvestment risk will not apply if you intend to spend the regular interest payments or the
principal at maturity.

6. Inflation risk

The risk of a loss in your purchasing power because the value of your investments does not keep up with
inflation

. Inflation erodes the purchasing power of money over time – the same amount of money will buy fewer
goods and services. Inflation risk

is particularly relevant if you own cash or debt investments like bonds. Shares offer some protection
against inflation because most companies can increase the prices they charge to their customers. Share

prices should therefore rise in line with inflation. Real estate

also offers some protection because landlords can increase rents over time.

7. Horizon risk
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The risk that your investment horizon may be shortened because of an unforeseen event, for example,
the loss of your job. This may force you to sell investments that you were expecting to hold for the long
term. If you must sell at a time when the markets are down, you may lose money.

8. Longevity risk

The risk of outliving your savings. This risk is particularly relevant for people who are retired, or are
nearing retirement.

9. Foreign investment risk

The risk of loss when investing in foreign countries. When you buy foreign investments, for example, the
shares of companies in emerging markets, you face risks that do not exist in Canada, for example, the
risk of nationalization.
Risk investment

Evolution and history of modern financial planning and analysis (FP&A)

evolution of finance blog

September 27, 2016

Mike Rost

From clay tablets to the cloud, accounting and finance have seen vast changes in tools, methods, and
focus since their inception. But they continue to evolve in the face of a changing business environment.

Developments in the type and amount of data available to finance professionals, along with powerful
new tools used to analyze it, have created a new role for financial planning and analysis (FP&A). Evolving
from reactionary to predictive has made finance a guiding hand for strategic business decisions—and
senior leaders have begun to expect timely insights, creating pressure for teams.

In this blog post, we trace key historical developments that created the modern financial planning and
analysis function. we examine new expectations and challenges facing FP&A professionals, and
strategies for meeting these expectations.

How we got here: a history lesson

Given the importance of goods and trade to human civilization, it’s not surprising that bookkeeping and
accounting date back to the beginning of recorded human history. Rudimentary accounting documents
have been found in the ruins of Mesopotamia, Babylon, and other ancient civilizations dating back
thousands of years.

Known as the “Father of Accounting and Bookkeeping,” Italian mathematician and Franciscan friar Luca
Bartolomeo de Pacioli described the double-entry accounting system in his 1494 book, Summa de
Arithmetica, Geometria. Proportioni et Proportionalita. The system included most of the accounting
cycle as we know it today and described the use of journals and ledgers, with account categories still
used in balance sheets and income statements.

Obviously, there were many developments following Mr. Pacoilo, but let's fast-forward to the 20th
century, when three major milestones laid the foundation for today’s accounting and modern finance
functions in the United States.
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In 1913, the U.S. ratified the 16th Amendment to the constitution, creating a federal income tax. The
amendment forced individuals and companies to improve record keeping, but there was considerable
confusion as to how this should be done.

As a result, in the Federal Reserve Bulletin of April 1917, the Federal Reserve issued "Uniform
Accounting." While the bulletin purported to promote accounting uniformity, it left the majority of
accounting choices to professional judgment.

Finally, following the stock market crash of 1929, the U.S. Congress passed the Security Act of 1933 and
the Security Exchange Act of 1934. The acts prohibited deceit, misrepresentations, and other fraud in
the sale of securities. It also established the Security and Exchange Commission (SEC), giving it broad
powers to oversee and regulate the securities industry. The Exchange Act also empowered the SEC to
require periodic reporting of information by companies with publicly traded securities.

These few points in history illustrate the foundation for the general practices of accounting, as well as
the impetus for the modern accounting and finance function in the U.S. But what about the ways
modern FP&A practices are accomplished?

Tools of the trade

As accounting practices have evolved since its origins, so have the tools used for calculating and
analysing accounting data. The first calculating machine, called the Sumerian abacus, dates back nearly
5,000 years, and was used for addition and subtraction.

Nearly three millennia passed before French mathematician Blaise Pascal invented the first mechanical
calculator, called the Pascaline Calculator, in 1642. Nearly two centuries later in 1837, British engineer
and inventor Charles Babbage conceived and designed the first general-purpose computer, dubbed the
Analytical Engine.

And in 1946, professors J. Presper Eckert and John Mauchly of the University of Pennsylvania invented
and built the first electronic digital computer called ENIAC, which stood for Electronic Numerical
Integrator and Computer. The introduction of the Intel 4004—the world’s first commercially available
Risk investment

microprocessor chip—by Intel Corporation in 1971 set the stage for a boom in computer development
that continues to this day.

Software tools began to emerge as a result of that boom. In 1978, VisiCorp released VisiCalc, the first
electronic spreadsheet for the Apple II. VisiCalc, which stood for visible calculator, was a game changer
that enables users to create custom reports and perform numerical analytics. As a result, it quickly
became the must-have software for the Apple II. Five years later, Lotus Development Corporation
launched Lotus 1-2-3, an integrated solution that handled spreadsheet calculations, database
functionality, and graphical charts. The program quickly eclipsed VisiCalc and became the must-have
software for the IBM PC. Lotus acquired VisiCorp two years later, discontinued its product lines, and
Lotus 1-2-3 became the industry standard. But not for long.

Microsoft® released its first version of Excel for the Macintosh in 1985. Over the next decade, Excel® and
Word® came to dominate the market for office software, and until recently, remained the predominant
tools for FP&A reporting.

The most pertinent recent development is Big Data, i.e., massive data sets used to reveal patterns,
trends, and associations. It’s fair to say that we are living in the era of Big Data. As former Google CEO
and Alphabet Executive Chairman Eric Schmidt eloquently characterized the situation, "There were 5
exabytes of information created between the dawn of civilization through 2003, but that much
information is now created every 2 days."

Changing expectations: a new world for accounting and finance

Why is the history of finance relevant? The milestones above helped create today’s modern finance
function as distinct from the accounting function. If we look at the two, clear differences emerge.

Accountants describe the present reality of a company's finances using historical information. They are
more interested in the specific and exacting details of day-to-day operations along with financial
accuracy and taxes.

By contrast, financial analysts tend to work with an overall picture. They consider past and current
trends to help the company achieve a future reality. They are storytellers who use numbers as their
Risk investment

language. They review financial decisions based on current market trends, stated business objectives,
and possible investment options. Financial analysts build off of accountants' work.

Until fairly recently, financial analysts' work focused on understanding underlying business systems,
recording and processing transactions, and reporting financial results. If we were lucky, we could add
value through analyzing results via high-level ratios and industry comparisons—and there were always
10-Ks and 10-Qs, the raw materials of finance, that needed to be analyzed and understood.

Prior to the advent of computers and spreadsheets, financial planning and analysis was, to be honest,
kind of boring. Financial analysts needed more data to analyze in order to provide more benefit to a
company. The good news is we got it.

Today, with digital tools at our disposal we can analyze more information at a deeper level than ever
before. Advanced analytics and modeling capabilities are readily available, and we can provide forward-
looking analyses that are insightful and impactful. In short, the financial function can be fun, exciting,
and powerful. However, as the old saying goes, “With great power comes great responsibility.”

Modern finance professionals have moved beyond the basics of number crunching and reporting. They
have become gatekeepers. True strategic partners. In that capacity, they provide insight into the future
by connecting the dots and unlocking value. They balance yesterday, today, and tomorrow. They help
drive accountability and transparency, and in doing so, help ensure the competitiveness of your
company.

It’s fair to say that modern FP&A professionals no longer just report the news but help make the news.
Senior management expects them to be the brains and provide the right information to keep the
business firing on all cylinders. Their job is to provide Smart Data, i.e., data that can be turned into
actionable insights and enables management to effectively solve their business problems.

What do I mean by Smart Data? It's information that is:

Risk investment

Relevant: it makes a difference, especially with regard to making predictions

Timely: it's relevant now

Faithful: it's complete, neutral, and error-free

Verifiable: it can be replicated and verified

Actionable: it' true to what it claims to represent and is deemed beneficial to the user

Understandable: it's quickly comprehensible by those familiar with the situation

The realities of financial planning and analysis as practiced today

Though today’s expectations for FP&A professionals are high, the reality of situation is sometimes quite
different. Here are some of the frustrations that I often hear when speaking with our customers.

– I’m struggling to live up to management’s expectations.

– I feel reactive versus proactive.

– I simply don't have enough time or resources.

– There's too much bureaucracy to overcome.

– We are tasked with competing priorities.

– There are too many challenges, and the environment is getting more complex.

– I don't really have support from my leadership.

– We lack the technology we need to do this.

Rest assured. You are not alone!

There are a host of challenges that financial professionals must confront, including technology shortfalls,
data access issues, and problems with data integrity.

According to a recent report from the American Productivity and Quality Center (APQC), 62 percent of
modern financial planning and analysis staff are buried in basic duties with no time for more analytical
Risk investment

work. In fact, a survey of FP&A professionals conducted by gtnews found that 66 percent of financial
professionals spend more than nine hours a month on non-value added activities.

These activities included:

64% identifying and correcting errors

63% manually updating reports

61% verifying accuracy

60% manually collecting and compiling data

55% proofreading to ensure accuracy

54% tracking multiple report versions

65 percent of survey participants also said they needed to improve trust at their workplaces, and 70%
said collaboration also needed to be improved.

What’s to be done?

If finance is to be effective and add value across the enterprise, it must first demonstrate efficiency and
value within its own business processes. To do that, financial professionals need to reengineer their
organizations' key finance processes. Reengineering is the critical path to freeing up resources, so that
finance team can focus on more value-added activities.

According to The CFO Agenda: Target Five Key Transformation Initiatives to Move Finance Forward,
published by the Hackett Group in 2016, reengineering also provides a solution for financial
professionals constrained by static or shrinking finance budgets:

Since there will be little or no additional money in the finance budget this year, reengineering processes
for greater efficiency is the main way to free up funds for investing in value-creation processes while
Risk investment

demonstrating continued commitment to maintaining a competitive cost structure. The basics of

process improvement have not changed—initiatives in this area should strive for ever greater
standardization, simplification, and elimination of non-essential activities.

To do this, the authors point out, professionals need to look to new technologies. “Digitization, robotic
process automation, the cloud, and new self-service analytics tools are technological game changers for
finance as it looks for ways to revamp its processes and be more responsive to customers.”

In short, to modernize the finance department, management must leverage technology. The primary
tools used by FP&A professionals, e.g., email, desktop word processors, and spreadsheets, were never
designed to handle today’s reporting and analysis requirements. Rather, they hinder us from achieving
our expectations and objectives.

An effective technological solution

Using the right tools can make all the difference. But what should you look for in that solution? Below
are three key functionalities to keep in mind as you assess what is right for you and your team.

The first focus should be to make collaboration an everyday activity. The solution should provide an
environment where you can leverage certified and trusted information, to publish to narrative reports,
dashboards, workbooks, and presentations.

You should have one active document that allows geographically distributed teams to work together to
build a cohesive story for management, stakeholders, and the board. You should also be able to
combine financial and nonfinancial data in one location to connect silos of information across the
enterprise.

Second, focus on accuracy by creating a single source of truth. Use your new solution to establish a
linked approach to the source data and all its destinations. If the source changes, all associated data
points should change with it. Accuracy then becomes an attribute, not a task. As a result, the most up-
to-date data will always be reflected. Click here to see how a single source of truth can be created.

Finally, worry about the future, not the past. Use a solution that has a comprehensive audit trail. You
should be able to accurately collect disparate data, know where its coming from, know where it
eventually travels to, and know when it changes.
Risk investment

Following these guidelines will help you to get rid of those non-valued added activities and focus on
what matters.

In summary, we have come along way—from clay tablets, to papyrus, carbon copy papers, and the
cloud. This history and evolution of finance has given us greater responsibilities. We have ambitious
goals and lofty dreams that we want to live up too. Assume that you have the ability to positively rise to
every challenge before you, and do it. Then, reallocate that time you’ve freed up to do something
impactful.

Risk Management
What is 'Risk Management'
In the financial world, risk management is the process of identification, analysis and acceptance
or mitigation of uncertainty in investment decisions. Essentially, risk management occurs when
an investor or fund manager analyzes and attempts to quantify the potential for losses in an
investment and then takes the appropriate action (or inaction) given his investment objectives
and risk tolerance.

Risk management occurs everywhere in the financial world. It occurs when an investor buys
low-risk government bonds over riskier corporate bonds, when a fund manager hedges his
currency exposure with currency derivatives, and when a bank performs a credit check on an
individual before issuing a personal line of credit. Stockbrokers use financial instruments
like options and futures, and money managers use strategies like portfolio and investment
diversification to mitigate or effectively manage risk.

Inadequate risk management can result in severe consequences for companies, individuals, and for the economy. For example,
the subprime mortgage meltdown in 2007 that helped trigger the Great Recession stemmed from poor risk-management decisions,
such as lenders who extended mortgages to individuals with poor credit, investment firms who bought, packaged, and resold these
mortgages, and funds that invested excessively in the repackaged, but still risky, mortgage-backed securities (MBS).
Risk investment

RISK MANAGEMENT It is essential for effective management control that all significant risks
and uncertainties in a project are systematically identified, quantified, analyzed, owned, acted
upon and monitored by the management team to maximize the likelihood of successful
achievement of objectives within budget and schedule targets. Risk management is a means of
dealing with uncertainty – identifying sources of uncertainty and the risks associated with them,
and then managing those risks such that negative outcomes are minimized (or avoided
altogether), and positive outcomes are capitalized upon. The need to manage uncertainty is
inherent in most projects which require formal project management

2. Definition of Risk - “The implications of the existence of significant uncertainty about the level of
project performance achievable” Risk Management - systematic application of management policies,
procedures and practices to the tasks of establishing the context, identifying, analyzing, evaluating,
treating, monitoring and communicating risk. (Risk) Management Process - consists of all the project
activities related to the identification, assessment, reduction, acceptance, and feedback of risks.

3. What is Risk Risk is a measure of the probability and consequence of not achieving a defined project
goal. Most people agree that risk involves the notion of uncertainty. Can the specified aircraft range be
achieved? Can the computer be produced within budgeted cost? Can the new product launch date be
met? A probability measure can be used for such questions; for example, the probability of not meeting
the new product launch date is 0.15. However, it is now generally accepted that when risk is considered,
the consequences or damage associated with failure must also be considered. Risk implies future
uncertainty about deviation from expected earnings or expected outcome. Risk measures the
uncertainty that an investor is willing to take to realize a gain from an investment.

Risk has three primary components : • An event (an unwanted change) • A probability of occurrence of
that event • Impact of that event (amount at stake) Conceptually, risk for each event can be defined as a
function of uncertainty and damage; that is: Risk = f(event, uncertainty, damage) In general, as either
the uncertainty or damage increases, so does the risk. Both the uncertainty and the damage must be
considered in a risk analysis. Since risk actually constitutes a lack of knowledge of future events, we can
define risk as the cumulative effect that these adverse events could have on the project's objectives.
Future events (or outcomes) that are favorable are called opportunities, whereas unfavorable events are
called risks. Another element of risk is the cause of risk. Something, or the lack of something, induces a
risky situation. This source of risk is often referred to as the hazard. The danger presented by the
majority of hazards is minimized simply by being aware of them and taking action to overcome them. A
large hole in the road is a much greater danger to a driver who is unaware of it than to one who travels
the road frequently and, knowing of the hole’s existence, slows down and goes around it. This leads to
the second conceptual equation: Risk = f(hazard, safeguard) : Risk increases with hazard but decreases
with safeguard. The implication of this equation is that good project management should be structured
to identify hazards and to allow safeguards to be developed to overcome them. If enough safeguards
are available, then the risk can be reduced to an acceptable level.

6. 1. A probability or threat of damage, injury, liability, loss, or any other negative occurrence that is
caused by external or internal vulnerabilities, and that may be avoided through preemptive action. 2.
Risk investment

Finance: The probability that an actual return on an investment will be lower than the expected return.
Financial risk is divided into the following categories: Basic risk, Capital risk, Country risk, Default risk,
Delivery risk, Economic risk, Exchange rate risk, Interest rate risk, Liquidity risk, Operations risk, Payment
system risk, Political risk, Refinancing risk, Reinvestment risk, Settlement risk, Sovereign risk, and
Underwriting risk. 3. Food industry: The possibility that due to a certain hazard in food there will be an
negative effect to a certain magnitude.

I. Introduction to the Stock Market

The workings of the stock market can be a great source of confusion for many people. Some
people believe investing is a form of gambling; and feel that if you invest, you will more than
likely end up losing your money.

These fears can stem from the personal experiences of family members and friends who
suffered similar fates or lived through the Great Depression. These feelings are typically not
grounded in facts. Someone who believes along this line of thinking likely doesn’t have an in-
depth understanding of the stock market and why it exists.

Other people believe that they should invest for the long-run but don’t know where to begin.
Before learning about how the stock market works, they look at investing like some sort of black
magic that only a few people know how to use. More often than not, they leave their financial
decisions up to professionals and cannot tell you why they own a particular stock or mutual fund.

Their investment style can be called blind faith, or perhaps it's limited to a sentiment such as,
“This stock is going up...we should buy it." Though it may not seem so on the surface, this group
is in far more danger than the first. They tend to invest by following the masses, and then wonder
why they only achieve mediocre, or in some cases, devastating, results.

Upon learning a few techniques, the average investor can evaluate the balance sheet of a
company, and following a few relatively simple calculations, arrive at their own interpretation of
the real, or intrinsic value of a company and its stock.
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This allows an investor to look at a stock and know that it is worth, for instance, $40 per
share. This gives each investor the freedom to determine when the market has undervalued a
security, increasing their long-term returns substantially, or overvalued it, making it a poor
investment candidate.

When learning how to value a company, it helps to understand the nature of a business and
the stock market. Almost every large corporation started out as a small, mom-and-pop operation,
and through growth, became financial giants.

Consider Walmart, Amazon and McDonald's. Walmart was originally a single-store business
in Arkansas. Amazon.com began as an online bookseller in a garage. McDonald's was once a
small restaurant of which no one outside of San Bernardino, California had ever heard. How did
these small companies grow from tiny, hometown enterprises to three of the largest businesses in
the American economy? They raised capital by selling stock in themselves.

As a company grows, it continues to face the hurdle of raising enough money to fund ongoing
expansion. Owners generally have two options to overcome this. They can either borrow the
money from a bank or venture capitalist or sell part of the business to investors and use the
money to fund growth. Companies often take out a bank loan, because it's typically easy to
acquire, and very useful, up to a point.

Banks won't always lend money to companies, and over-eager managers may try to borrow
too much, which adds a lot of debt to the company balance sheet and hurts its performance
metrics. Factors such as these often provoke smaller, growing businesses to issue stock. In
exchange for giving up a tiny fraction of ownership control, they receive cash to expand the
business.

In addition to money that doesn’t have to be paid back, going public, as it's called when a
company sells stock in itself for the first time, gives the business managers and owners a new
tool. Instead of paying cash for certain transactions such as an acquisition of another company or
business line, they can use their own stock.
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All investment banking activity is classed as either "sell side" or "buy side". The "sell side" involves
trading securities for cash or for other securities (e.g. facilitating transactions, market-making), or the
promotion of securities (e.g. underwriting, research, etc.). The "buy side" involves the provision of
advice to institutions that buy investment services. Private equity funds, mutual funds, life insurance
companies, unit trusts, and hedge funds are the most common types of buy-side entities.

Currently, risk management takes two things into deliberation in the banking sector, (I) possibility of a
negative impact and (II) cost of the negative impact. So basically, risk management has a very controlling
role in the functioning of a bank. The bank wants to make sure that they can repay the debt in a
negative scenario, so it ensures, that too much money is not taken from the client, or push the client
into a liability.

Risk management becomes the nucleus of internal control of investment banks, especially in mature
international markets. Investment banks buy and sell bonds, prices of these securities vary regularly if
the prices go up there is a profit made and if they go down, the loss is incurred.

Risk management is at the center of the internal control of investment banks in mature international
markets. Therefore, it is necessary to analyze it separately. This section discusses the topic from three
perspectives: (1) major categories of risks facing investment banks in mature international markets, (2)
internal risk-management structures of investment banks, and (3) risk-management methods commonly
used in the industry.