Reducing Information Asymmetries: Financial Risk Management Benefits

Reducing Information Asymmetries: Financial Risk Management Benefits
Author

Chandana

Last updated July 6, 2013


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The field of financial risk management is growing by the day owing to the increasing risks in firms. FRM controls loss of finances in firms opening up ways for better profit share. There are various types of risk management tools such as directives, VaR, integrated risk management, Stop-loss limit, Notional limit, Exposure limit and so on. All these risk management tools helps one to control financial risks in firms. With FRM , a firm can avail host of benefits.

Reducing Information Asymmetries:
Many a times, there exists information asymmetry between the insiders and the external investors. Insiders have a greater knowledge about the firm’s position. Therefore, the outsiders always want the firm to reduce risk from activities that are outside management control. This helps in building up their confidence and lowers their return expectations. This again in turn reduces the cost of capital to the firm and increases firm value. This benefit of financial risk management associated with reducing information asymmetries can be concludes as below:
  • FRM can help firms to lower the risk from activities that are outside management control and boost investor confidence
  • FRM can reduce cost of capital and increase firm value
To know more about financial risk management in detail and the tools used to manage financial risks in firms, you can explore our online and classroom training courses for FRM Part 1 Certification.

About the Author

Chandana is working as a Senior Content Writer in Simplilearn.com and handles variety of creative writing jobs. She has done M.A. in English Literature from Gauhati University. A PRINCE2 Foundation certified, she has a unique and refreshing style of writing which can engross the readers to devour each sentence of her write-ups.

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