This Management Accounting Guideline (MAG) summarizes the basic principles of financial risk management. The MAG first briefly outlines (a) the different types of financial risk that firms may face, (b) the basic elements of a risk management framework, and (c) the benefits of managing financial risks.
The MAG’s core sections then focus on the interlinked issues of risk assessment (or quantification) and possible control tools. Risk assessment and control tools are suggested for each type of financial risk, and real-world examples are used to illustrate the discussion.
A case study of the financial risks and the financial risk management choices available to Pietrolunga, a fictitious specialist Italian lumber merchant, shows how the suggested methods may be applied in practice. A glossary of key terms provides a quick source of reference.
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