Investment banking is one of the most sought after career paths today. Learning how to help companies deal with financial risk is at the heart of investment banking.
Investment banking jobs are prestigious, lucrative and come with significant risk as well. The financial sector hires individuals who have not only undergone investment banking training but also are smart, hardworking and driven. Investment bankers work primarily revolves around helping big corporates who are their clients make informed financial decisions by taking stock of the various pros and cons. A key aspect of this job also involves assessing the various types of risks when it comes to running a business.
Financial risk is one of the most important things businesses consider while looking at expanding or simple day to day operations. It is one of the top concerns when it comes to finding capital to run the business, prepare contingency plans and also to forecast the growth trajectory of the business. For those wanting to pursue the certification courses in investment banking, this is the biggest lesson to learn.
When it comes to investing, one of the first things that individuals learn about in investment banking courses, is risk management. Here are the different types of risks and how to manage it.
One of the high priority risks for business is a financial risk and it can be categorized into various types such as market risk, credit risk, liquidity risk, operational risk, and legal risk. Market risk is the risk associated with stocks, the interest rate in the stock market which is not in the control of the organization. Liquidity risk, on the other hand, can be further classified as asset liquidity risk and funding liquidity risk. Funding liquidity risk arises when there are not enough buyers for the product or service. External threats for a business include the legal risk that is the potential of getting lawsuits. If a company has to face financial losses or legal issues then it can be considered as legal risk.
One of the biggest risks associated with a business is an operational risk and it predominantly revolves around mismanagement or any other technical failures. It can also mean fraudulent activities or risk of fraudulent activities that every business must think about. Operating a business also involves a risk of losing employees due to bad management which also comes under this type of risk.
Sometimes the very nature of the business may involve risks such as risk the type of jobs carried out by individuals, diseases associated with carrying out the job and political scenarios, etc. This means that the investment for this type of business from the very beginning will be very high as it will need to account for the type of job itself.
Learning how to manage financial risk for the clients is an important attribute that investment bankers must learn in order to succeed in their career.