What is Financial Risk Management and Why Study It?

What is financial risk management?

Every investment comes with potential risks. In fact, there is no profit without risk. Contrary to what we are used to, risks in finance can be positive as well as negative. In short, a risk is any deviation from the expected outcome. Risk management is the necessary step of evaluating possible outcomes, analyzing potential gains and losses, and deciding on what action should be taken (or not) given the conclusions from the evaluation.

Why study it?

A 2019 report by Accenture indicated that new investment risks are emerging with unprecedented speed. The top three new challenges appointed by specialists were disruptive technology, data breaches, and operational risks. Moreover, climate change has become a factor to be considered as property, infrastructure, and land damage pose new challenges.

The 2007 recession in the USA was caused by a combination of the housing boom of the early 2000s and low-interest rates, which resulted in investors offering home loans to individuals with insufficient credit. Their eventual inability to pay such loans led to a real estate meltdown, which caused an economic collapse, one of the worst the country (and world) has seen.

This is only one example of how financial decisions can affect people’s lives at a national or even global level. There are many other factors today that put responsible financial managers in high demand…

Sustainable economy

While some may believe financial risk pertains only to high-ranking CEOs and investors, it’s essential to understand how it affects everyone. A country’s population is entirely interconnected through its financial system, and poor financial decisions can lead to an unreliable market and a declining economy. Having a reliable financial market means a stable and sustainable economy, in which everyone will benefit from better living conditions.

Solve climate change risks

As mentioned, the reality of climate change can affect businesses and investments in many ways. Besides the physical risks of property damage, business disruption, and the need for relocation, factors like technological transition and policy changes need to be considered in a risk analysis.

However, the full scope of how climate change affects the economy is still unknown. Specialists believe the economic impact of climate change will only intensify over the following years, meaning that future professionals may encounter a very different scenario from the one we see today.

Cybersecurity

Cyber risk is the number one threat to the global financial system, says U.S. Federal Reserve Chairman Jerome Powell. Financial institutions are prime targets for cyberattacks, and sector leaders have appointed cyber security to be at the top of their priorities, rising above every other potential risk. Risk managers need to develop strategies to effectively deal with the cyber threat in a world that relies on technology to keep the global economy afloat.

Cryptocurrencies

The recent boom in cryptocurrency assets can directly affect the overall financial system. A report by the Financial Stability Board has highlighted vulnerabilities in the crypto market, such as linkages with the regulated financial system, liquidity mismatch, and credit and operational risks. Blockchain intelligence companies have invested in risk management technology, but this remains a sector that will need to be followed closely as it further develops.

Geopolitics

Not many companies fully consider how geopolitics involves a variety of financial risks. Access to natural resources, proximity to countries in conflict, limits on foreign relations, corruption, and local culture are just some factors to consider in a risk analysis. Each location provides a particular financial scenario, and only by fully understanding this context can a business use it to its advantage.

Work opportunities

A specialized professional in financial risk management is necessary for every business. Many companies hire consultants or teams to anticipate exposure, quantify the risk, and plan mitigation strategies. As a risk specialist, you can work in sales, trading, marketing, banking, and many other sectors, while benefiting from the increasing demand for qualified professionals in the field.

ICADE Business School

You can start a career in risk management with a bachelor’s degree in accounting, business, or mathematics, but companies are looking more for professionals with specialized, postgraduate degrees in the area. To prepare students for the rising expectations of the market, ICADE Business School has created the Official Master’s Degree in Financial Risk Management, which offers specialized training for students of all backgrounds who want to start a career in risk management.

As part of the Faculty of Economics and Business Administration at Comillas Pontifical University in Spain, ICADE has over 50 years of history training students for the competitive business world. Located in beautiful Madrid, ICADE, part of Comillas Pontifical University, is committed to evolving with economic trends and always providing world-class, up-to-date education to its students.

For former student Guillermo Sánchez, “This degree provides an excellent education and training, which provides the foundation to develop a successful professional career in an area in high demand at companies.”

There is no specific academic requirement for incoming students - you can apply regardless of what area your Bachelor’s degree was in, but it’s highly recommended that you have a keen interest in technology and mathematics, as they are fundamental in the field.

The program is divided into four parts: the first module teaches the foundational theory necessary for the degree, and the second shifts to subjects specific to risk management. The third and fourth modules focus on developing your dissertation and professional experience through an internship placement.

Graduates from the ICADE program pursue successful careers: nearly 100% of alumni secure a job within six months from graduation. “These studies will allow you to develop your talents to the fullest and respond perfectly to the needs of the market, given their international perspective,” says graduate Giorgo Bertelli.

For more information about ICADE’s Master’s Degree in Financial Risk Management and the requirements for application, visit the program’s website!

Article written in association with ICADE Business School.