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Financial risk is the possibility that shareholders or other financial stakeholders will lose
money when they invest in a company that has debt and the company's cash flow proves
inadequate to meet its financial obligations. In other words, financial risk is the type of
specific risk that encompasses many types of risks related to a company's capital
The finance department plays a critical role in the operation of APS. Therefore, the financial
risk can affect many departments and activities within APS and can result in decelerating the
performance of accomplishments. Financial risks can arise from internal and external sources,
such as:
• Interest rates
• Exchange rates
• Commodity prices
• Clients/Customers
• Suppliers
• Partners
• Market liquidity
• Cash flows
• Financing
3. Procedures
required to have better strategies to manage and tackle the financial risk.
1. Risk Identification
2. Risk assessment
3. Risk measurement
5. Risk governance
1. Risk identification
Financial risk identification is the combined effort of identifying and analyzing potential
(future) events that may negatively impact individuals, assets, and making judgments. The
financial risk can include market risk, credit risk, and liquidity risk that can be illustrated as
follow:
competes for business. One example of market risk is the increasing tendency of consumers to shop online.
This aspect of market risk has presented significant challenges to traditional retail businesses. Companies
that have been able to make the necessary adaptations to serve an online shopping public have thrived and
seen substantial revenue growth, while companies that have been slow to adapt or made bad choices in
Credit Risk is the risk businesses incur by extending credit to customers. It can also refer to the company's
own credit risk with suppliers. A business takes a financial risk when it provides financing of purchases
to its customers, due to the possibility that a customer may default on payment.
A company must handle its own credit obligations by ensuring that it always has sufficient cash flow to
pay its accounts payable bills in a timely fashion. Otherwise, suppliers may either stop extending credit to
the company, or even stop doing business with the company altogether.
Financial markets also face the problem of liquidity, or difficulty in being able to turn assets into cash.
This form of financial risk is caused by one or more financial market participants not having enough cash
to meet all financial obligations by the due dates of the accounts. The fear with this type of risk is that
failure of one financial market participant, such as a corporation, to meet its financial obligations may
Finance department of APS is required to measure financial risks facing the company. In financial
section, risk measurement is used to determine the amount of an asset or set of assets to be kept in
reserve. The purpose of this reserve is to make the risks taken by APS.
Continuous monitoring and controlling of financial risks ensure that the risk response strategy and the
risk treatment action plan are implemented and progressed effectively. Thus, APS’s finance
department has prepared a procedure to control and monitor finance related risks. The process of
controlling and monitoring financial risks includes the following tools and techniques:
• Risk reassessment
• Risk audits
• Reserve analysis
• Status meetings.
The financial risk controlling and monitoring process results in generating revisions to the risk register
and supplementing with new action items for the risk treatment process.
4. Risk Governance:
Financial risk governance refers to the way a financial institution collects, manages, monitors and
controls financial information. Financial risk governance includes how finance department of
Afghanistan Payments System (APS) tracks financial transactions, manages performance and controls
data, compliance, operations, and disclosures. Financial governance in action are the policies and
procedures APS uses to manage business data and ensure that data is correct.
• Internal controls
• Financial policies
• Data security