Governance and Risk in Finance, Term Project 1 Essay

Governance and Risk in Finance, Term Project 1 - Essay Example The macro risk factors can be political, economical, social and technological factors called PEST analysis. The macro economic variables generating macro risks are price indexes, exchange rates, commodity prices, variables of monetary policy etc. However, there are certain credit rating agencies who give credit rating to institutions from excellent to poor like A.M.Best, Dun & Bradstreet, Standard & Poor’s, Moody’s, and Fitch Ratings. The Standard & Poor gives rating scale ranging from AAA to BBB to CCC to D. Rating lower than BBB- is considered as junk or speculative bond. Sound corporate governance enables organizations to control risk beforehand. Hostile takeovers are often seen as from governance point of view as the threat of takeover is believed to exert pressure on managers to act protecting the interest of shareholders. Content Corporate governance can be referred to as the structure and processes through which the affairs and business of an institution are mana ged and directed in order to improve the shareholder value over long term through enhancement of accountability and corporate performance considering the interest of other stakeholders. Risk management is referred to as the assessment, identification and risk prioritisation. It refers to as the effect of uncertainty on objectives. Governance and risk in finance are closely related concerns. In fact, governance, risk and compliance (GRC) are integrated in terms of avoiding conflict and gaps within an organisation. It is interpreted in various organizations in different manner. It encompasses activities of corporate governance, corporate compliance with laws and regulations applicable and enterpriser risk management (ERM). Introduction Corporate governance does not provide any single, accepted definition. It implies the way in which a company can be managed to ensure all of its stakeholders so that they can get their fair share from the earnings of the business or from the firmâ€℠¢s assets. It provides the system of directing and controlling the companies. In present days, corporate governance not only encompasses the interest of shareholders but also many stakeholders. The reason underlying this fact is that interest of shareholders can only be satisfied by taking into account the interest of stakeholders as companies accountable to all of their stakeholders are more successful and prosperous over the long term. So, corporate governance rests on the perception of maximising value creation by companies over long term by discharging the accountability to all of their stakeholders and by optimizing the system of corporate governance. It is also based on the economic concept of maximising market value that underpaid shareholder capitalism as it frames rule to conduct business in accordance with the desires of shareholders and owner, requiring to make money as much as possible confirming to the basic rules of society as embodied in local customs and law. There a re challenges in modern society to deal with risk appropriately and effectively manage it. International Risk Governance Council (IRGC) has given certain governance mechanisms to effectively deal with risks. Implementing such governance mechan