From the course: Finance Foundations: Risk Management
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Direct and indirect risks
From the course: Finance Foundations: Risk Management
Direct and indirect risks
- Sometimes it's not the devil, you know, but it's the devil you don't. Direct financial market risks are the devils that corporations usually know very well while indirect risks can be the devils they don't, but those indirect risks need to be recognized, measured, and monitored just as closely as direct risks, a company faces. You need to be able to identify direct and indirect financial market risks, including risks from currencies and physical commodities. And you need to know that these risks can originate from a vendor or a competitor. Direct risks are those that a company sees day to day, both physical and financial. Let's consider a US-based auto manufacturer as a direct financial risk. A US-based auto manufacturer selling goods into Europe is certain to be aware that a stronger Euro would help the company sell more cars into Europe, but a weaker Euro would hurt sales. That's a direct risk. A direct currency…
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