Formation and management of an investment portfolio. Risk management Factors that determine the risk of changes in property value
Exchange risks represent a danger of losses from exchange transactions. These risks include the risk of non-payment on commercial transactions, the risk of non-payment of brokerage firm commissions, etc.
Selective risks(Latin selektio - choice, selection) is the risk of incorrect choice of types of capital investment, type of securities for investment in comparison with other types of securities when forming an investment portfolio.
Risk of bankruptcy represents a danger as a result of the wrong choice of capital investment, the complete loss of the entrepreneur’s own capital and his inability to pay off his obligations.
3. Risks associated with the form of organization of economic activity include:
· advance;
· turnover risks.
Advance risks arise when concluding any contract if it provides for the delivery of finished products against the buyer’s money. The essence of the risk is that the seller company (risk bearer) incurred certain costs during the production (or purchase) of goods, which at the time of production (or purchase) were not covered by anything, i.e. from the position of the risk holder's balance sheet, they can only be closed with the profit of previous periods. If a company does not have an effectively established turnover, it always bears advance risks, which are expressed in the formation of warehouse stocks of unsold goods.
Turnover risk- assumes the onset of a shortage of financial resources during the period of regular turnover: with a constant rate of product sales, the enterprise may experience turnover of financial resources of different speeds.
Group of other types of risks extensive, but in its financial consequences not as significant as those discussed above. These include deposit risk (the possibility of non-return of deposits, non-repayment of certificates of deposit), the risk of untimely implementation of settlement and cash transactions (associated with an unsuccessful choice of a servicing commercial bank); risk of falsification of financial statements; risk of theft of certain types of assets; emission risk and others.
2. However, this is not always done consistently. Thus, pure risks include a number of commercial risks that can give a positive result (especially trade).
4. Unfortunately, there is no way for the author to consistently divide risks into groups, categories, types, subtypes and varieties.
And, as a result, the usefulness of such a classification is sharply reduced and the general logic of identifying and explaining risks is lost.
Another direction (fifth direction) Risk classification is associated with the classification of risk management methods.
Risk factors can be classified according to different criteria. A natural requirement for classification is its focus on methods of compensating or countering risks. The work [K35] proposes to correlate the classification of risk factors with the classification of risk management methods. This limits the possibilities of formally combining essentially different factors in one classification group.
Depending on the area of occurrence, the risks of a production-type enterprise can be divided into internal And external [K35].
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Rice. 3. Risk classification
TO external include factors caused by reasons not directly related to the activities of the enterprise itself:
· political;
· socio-economic;
· environmental;
· scientific and technical.
Internal Risk factors are factors whose occurrence is caused or generated by the activities of the enterprise itself.
External risks
Political risk factors.
Political risk factors include:
§ stability of political power both at the federal and regional levels (favorable or unfavorable conditions for the functioning of enterprises, the possibility of revising property relations, etc.);
§ the possibility of local ethnic and political conflicts;
§ contradictions in the delimitation of rights and responsibilities between federal and regional authorities;
§ separatist movements in a number of regions and republics of Russia;
§ establishing restrictions on the movement of goods and capital.
The consequence of political risk factors is the “flight” of capital from the region, the curtailment of economic activity of enterprises, and the growth of stagnation in the economy.
Socio-economic risks.
Socio-economic risk factors include:
§ changes in tax regulations;
§ increase in interest rates;
§ devaluation (rate fluctuations) of the ruble;
§ changes in currency circulation rules;
§ increasing tariffs for transportation, energy, etc.;
§ fluctuations in prices for raw materials, materials, components;
§ demand for repayment of borrowed funds caused by changes in creditors' expectations;
§ the emergence of new economic entities in the region with more attractive conditions, etc.
The consequence of such risks is a sharp change in the market situation, a drop in effective demand for the enterprise's products, and increased competition from other business entities.
Environmental risks.
Environmental risks include the following factors:
§ tightening requirements for environmentally friendly production;
§ introduction of more stringent sanitary and other standards;
§ changes in the regional environmental situation;
§ restrictions on the use of local natural resources;
§ requirements for deduction of part of profits for environmental protection measures.
The consequence of environmental risks is an increase in the cost of production and a decrease in its competitiveness.
Scientific and technical risks.
Scientific and technical risks are caused by the emergence of innovations in the production of goods from competitors, causing a reduction in costs or the emergence of new replacement products.
The consequence of this type of risk is the displacement of enterprises with traditional products from the market.
Internal risks
Risks of production activities
a) Risks of the main production activities.
The risks of the main production activities include:
§ violation of technological discipline;
§ accidents, fires, disasters;
§ unscheduled shutdowns of equipment and interruptions in the technological cycle of the enterprise, etc.
The consequence is loss of profit and direct losses.
b) Risks of auxiliary production activities.
The risks of auxiliary production activities include:
§ power outages;
§ extension of repair time;
§ breakdowns and accidents of auxiliary systems;
§ shortcomings in auxiliary facilities.
The consequence is a decrease in production volume.
c) Risks of supporting activities.
The risks of supporting activities include:
§ failures in the operation of services that ensure the uninterrupted functioning of the main and auxiliary production (warehouse, transport, etc.);
§ failures in the operation of information systems, etc.
The consequence is a deterioration in the economic situation of the enterprise due to, for example, insufficient patent protection of manufactured products, delays in decision-making due to delays in the necessary information.
Risks of reproductive activities
Risks of reproductive activities are mainly associated with:
· investment activity;
· processes of recruitment, training and promotion of personnel.
The consequence is a decrease in the competitiveness of products and an outflow of qualified personnel.
Risks in the area of circulation
Risks in the area of circulation are due to:
· violation of supply schedules for raw materials and components by related enterprises;
· unmotivated refusal of wholesalers to supply or pay for ordered products;
· bankruptcy of enterprises (business partners), etc.
Management risks
a) at the level of strategic decision-making:
· wrong choice of enterprise goals;
· incorrect assessment of the strategic potential of the enterprise;
· erroneous forecast of the development of the general economic situation in the country.
b) at the level of making tactical decisions:
· the possibility of distortion or partial loss of meaningful information during the transition from strategic to tactical planning;
· discrepancy between tactical decisions and strategic ones.
c) at the level of making operational decisions.
Conclusion: The above classification makes it possible not so much to list all the risk factors as to create a certain system that would make it possible not to miss individual factors when analyzing the total risk and risk profile of a production enterprise.
Thus, consideration of the types of classifications allows us to note the following.
1. There is an active process of theoretical understanding of commercial risk as a generalized concept of risk present in any business activity. An integral part of this process is an attempt by a number of researchers to consolidate an understanding of the issue of general classification of risks.
2. A systematic approach to risk identification and analysis has been strengthened. The difficulty lies in finding a system-forming principle that allows you to organize the identified risks in such a way that the classification becomes accessible for practical use.
3. The need to classify risks is so acute that not a single issue relating to a specific risk can be resolved without determining its place in the overall system of commercial risk.
4. There is a wide variety both in the names of the risks identified by the authors and in the definitions of their content. It is sometimes striking that there is a wide range of opinions regarding the distribution of risks among groups and in determining the level of their subordination.
5. The leadership in developing the topic of risks belongs to the banking sector. Its productivity is determined by research that comes from the need to solve specific practical problems of managing the structure of the bank’s balance sheet and profit, the need for deeper penetration of senior managers into the bank’s body through an internal control system in order to realize the hidden reserves of effective bank management.
In this regard, the problematic approach to risk classification outlined in the article is of interest. The problematic approach is presented using the example of credit risk.
The essence of the approach is that the source of risk is public relations. For a systematic analysis of social relations from this point of view, it is proposed to base the classification of commercial risks on criterion of the relationship between the whole and its parts.
The relationship between the whole and the part makes it possible to uniformly classify the commercial risks of each economic entity based on the following levels of the system (Fig. 4):
Rice. 4. Procedure for developing risk classification
Accordingly, commercial relations:
· “element – element, function, structure, figure” - this is the specific area of risk;
· “function – element, function, structure, figure” – this is a generic area of risks, etc.
All commercial risks are proposed to be divided into natural, country, market and business.
Natural risks associated with natural processes in the material world around us. These risks are associated with natural business conditions, natural disasters: losses from natural wear and tear, failure of material support for commercial activities.
Country risks are formed by the state of affairs in the countries of business orientation. Country risks for Russian residents are the conditions of entrepreneurship in the specific circumstances of the interaction of all spheres of social reproduction in Russia (material, organizational, informational, personnel). For residents carrying out business activities abroad, country risks are associated with the state of affairs in foreign countries.
Market risks are determined both by the state of a specific profile market (local, regional, all-Russian) and by intermarket interactions.
Business risks– these are the risks of production, distribution, exchange and consumption of the product of an economic entity.
A commercial transaction involves at least two entities. Both are subject to their own business and market risks.
The fundamental set of risks is always the same (figured, structural, functional, elemental); the specifics are determined only by the type of their activity.
A significant part of business risks is determined by the internal processes of a commercial entity. These include:
· figured risks;
· structural risks;
· functional risks (technological, financial, economic, consumer);
· elemental risks (resource, product).
So, four levels of commercial risks have been identified. Their implementation at any given moment depends on the dynamics of relations between economic entities both within each individual level and on interlevel planes.
To carry out constant monitoring of these processes, it is proposed to use modeling using a risk matrix and assessing the state of risks at any time during the project.
Group of modules that form risk
R - risks | Group of natural risks modules | Group of country risk modules | Group of market risk modules | Group of business risk modules |
Level of business relationship | 13) Business R-natural R's | 14) Business R-Country R | 15) Business R - market R | 16) Business R- business R |
Level of market relations | 9) Market R-natural R | 10) Market R-country R | 11) Market R- market R | 12) Market R - business R |
Level of country relations | 5) Country R-natural R | 6) Country R-country R | 7) Country R- market R | 8) Country R - business R |
Level of natural relationships | 1) Natural R-natural R | 2) Natural R-country R | 3) Natural R - market R | 3) Natural R - business R |
Based on a preliminary analysis of the loan application, a “map” is formed and risk zones with the highest level (degree) of stress are determined. Part of the tension is relieved by risk limitation techniques, and the rest is relieved by the insurance reserve.
For example, for a client who applies for a loan, the analysis begins immediately from the 16th module and the determination of creditworthiness ratios is carried out. Modules 15 and 12 are partially used for the project submitted for lending.
1.3. The concept of risk management
Risk management– the concept is very broad, covering a wide variety of problems associated with almost all areas and aspects of management.
Risk management– one of the most important areas of modern management, associated with the specific activities of managers in conditions of uncertainty and complex choice of options for management actions.
The presence of risk is inevitable in market economics, and the higher the level of risk, the greater, as a rule, other things being equal, the possible profit. In an unstable market economy, risky business is rapidly developing. In these conditions, risk management plays a special role.
With the expansion of the zone of risky situations, risk management becomes an objectively necessary and very significant element of management, the most important prerequisite for business success.
Definition 1.2.Risk management is a system for assessing risk, managing risk and financial relations arising in the business process.
Risk management is risk management system and economic (primarily financial) relations arising in the process of this management, including strategy And tactics managerial relations.
Definition 1.3.Management of risks – a special type of management activity aimed at reducing the impact of risk on the results of the enterprise.
Each enterprise is subject to its own risks and uses its own specific methods to prevent them. The totality of such actions constitutes a risk management system.
Under management strategy This refers to the directions and ways of using means to achieve the goal.
Each method has a specific set of rules and restrictions for making the best decision.
Tactics is a set of practical methods and management techniques to achieve the goal of limiting risk in specific conditions.
Conventionally, the risk management system consists of two subsystems: a managed subsystem (managed object) and a control subsystem (managed subject).
Control object– risky investments and economic relations between business entities in the process of implementing the decision.
Subject of management– a group of managers (deputy manager for financial issues, financial manager, etc.) who make decisions on enterprise management. In risk management, such managers are also called decision makers (DMs).
The risk management system is ensured by the operation of an information system, which includes various types of information: statistical, commercial, financial, etc. The quality of the decision made, and therefore the magnitude of the possible risk, largely depends on the completeness and quality of this information.
Risk management is based on the organization of work to identify and reduce the degree of risk.
The entrepreneur's risk management activities are called risk policy.
Definition 1.4. Under risk policy is understood as a set of measures aimed at reducing the risk of erroneous decision-making already at the moment of its adoption and reducing the possible negative consequences of these decisions at other stages of the company’s functioning.
The definition of risk policy is somewhat broader than and includes risk management.
Unfortunately, in economic science and business practice, there are essentially no well-developed provisions on economic risk. Methods for assessing risk in relation to certain production situations and types of activity are extremely poorly developed; there are no widespread practical recommendations on ways and means of reducing and preventing risk.
Although there are certain types of business activities in which risk can be calculated and assessed, and where methods for determining the degree of risk have been worked out both theoretically and practically. This is primarily property, health and life insurance, as well as lottery and gambling. It is clear that in these cases we are talking about relatively narrow, extremely specific types of entrepreneurial activity. Real business activity is very complex and diverse and therefore it is very difficult to develop risk assessment procedures that are suitable for many practical situations that arise in the decision-making process.
1.4. Goals and objectives of risk management
Definition 1.5. The purpose of risk management - in the broadest sense, it is the preservation of all or part of one’s resources or the receipt of the expected income in full as a result of the decision made.
Risk management tasks:
· collection, analysis, processing and storage of information about the environment;
· determination of the degree and cost of risks, risk management strategies and techniques;
· development of a program of risk decisions, organization of its implementation, monitoring and analysis of results;
· development of a program of risky investment activities;
· carrying out insurance activities on risk solutions;
· issuance of guarantees under the guarantee of Russian and foreign companies, compensation of losses at their expense;
· maintaining appropriate accounting, statistical and operational reporting on risk decisions.
There are 10 rules of management decisions formulated by the famous American sociologist M. Rubinstein, which allow us to consider the problem of risk as a certain scientific and economic system with its own laws and rules.
1. Try to get an idea of the problem as a whole before going into details.
2. Don't make hasty decisions until you have considered all your options.
3. Doubt, even the most generally accepted truths should be distrusted and one should not be afraid to deflect them.
4. Try to look at the problem in front of you from a variety of points of view, even if the chances of success seem minimal.
5. Looking for a model or analogy, which will help you better understand the essence of the problem posed by presenting it in the form of a diagram or diagram.
6. Ask as many questions as possible, since a correctly asked question can sometimes radically change the content of the question.
7. Don't be satisfied with the first solution, which comes to everyone's mind. Find its weak points and suggest other solutions, comparing with the original solution.
8. Consult someone before making a final decision.
9. Don't downplay your intuition, although the leading role of logical thinking in the analysis of the problem remains the main one.
10. Every problem has its own point of view, based on the individuality of each person.
Risk management has its own system of heuristic rules and techniques for making decisions under risk conditions [U4]:
¨ you cannot take more risks than your own capital can allow;
¨ you should always think about the possible consequences of the risk;
¨ a positive decision related to risk is made only in the absence of doubt;
¨ you cannot risk a lot for the sake of a little;
¨ if there is doubt, negative decisions are made;
¨ You cannot think that there is always only one solution; perhaps there are other options.
It is advisable to classify risks according to the “three-type” classification of risks:
· at the place of risk occurrence;
· according to the time of risk occurrence;
· due to risks.
1. Technological risk
The danger of obtaining a low-quality product in a specific technological process, associated with the entry of low-quality materials into the technological process, random deviations from standard conditions during processing during the production process of the product, errors in setting up machines, control errors, etc.
2. Economic risk
The risk of losses and damages due to changes in prices for materials and purchased products, as well as for manufactured products.
3. Financial risk
The danger of losses associated with the placement of capital, errors in the choice of investment projects, fluctuations in securities prices, etc.
4. Organizational risk
The danger of losses associated with incompetent decisions of individual managers and the lack of an effective system for monitoring the activities of specialists at all levels of the production cycle, including the supply of raw materials and components.
5. Political risk
The risk of losses due to changes in the political situation, the emergence of new laws and regulations that change the possibilities for purchasing raw materials, storing and marketing products, etc.
6. Security risk
Risk of losses due to insufficient safety (fire, criminal, etc.) of production activities, storage, sales, etc.
7. Information risk
The danger of losses due to mistakes made when conducting marketing research due to random data obtained during the study of markets for raw materials and components, sales of finished products, etc.
8. Resource risk
The danger of losses due to production downtime in the absence of necessary resources, repair equipment, as well as the replacement of workers and employees in the event of their illness.
9. Sales risk
Danger of losses due to overstocking of warehouses due to fluctuations in sales policy.
List of terms and definitions
1. Franchising– granting the integrated company the right to use the trademark, know-how, material and technical resources belonging to the integrator.
2. Risk– a generalized subjective characteristic of a decision-making situation under conditions of uncertainty, reflecting the possibility of occurrence and significance for the subject of decision-making of damage as a result of the consequences of making a particular decision.
3. Risk– an event that causes damage to the economic activity of an enterprise.
Literature
1. Kleiner G.B. and others. Enterprise in an unstable economic environment: risks, strategies, security / G.B. Kleiner, V.L. Tambovtsev, R.M. Kachalov / Edited by. ed. S.A. Panova. – M.: OJSC Publishing House “Economy”, 1997. – 288 p.
2. Bachkai T. et al. Economic risk and methods of its measurement: - Per. from Hungarian M.: Economics, 1979. - 184 p.
3. Algin A.P. Risk and its role in public life. - M.: Mysl, 1989. – 188 p.
4. Buzzell R.D. and others. Information and risk in management. – M.: Finstatinform, 1994. – 95 p.
5. Mushik E., Muller P. Methods for making technical decisions: - Trans. with him. M.: Mir, 1990.
6. Rotar V.I., Sholomitsky A.G. On risk assessment in insurance activities // Economics and mathematical methods. 1996. T.32. Issue 1. pp.96-105.
7. Kleiner G.B. Risks of industrial enterprises (how to reduce and compensate for them) // Russian Economic Journal. 1994. No. 56. P.85-92.
8. Kleiner G.B., Tambovtsev V.L. Enterprise in conditions of uncertainty // Man and labor. 1993. No. 2, pp. 81-84.
All transactions in the financial market, including transactions with securities, are riddled with risk. In the most general case, risk refers to the likelihood of an event occurring. Assessing risk means assessing the likelihood of an event occurring.
Some under financial risks imply the likelihood of losses in the form of direct financial losses, lost profits, or a decrease in the return on investment as a result of various reasons. These reasons can be very diverse: from real economic, political and other events to ridiculous rumors and assumptions.
Others believe that financial risk is the risk of reduced profitability of direct financial losses or lost profits that arises in financial transactions due to the high degree of uncertainty of their results, with the influence of many random factors on them, possible inefficiency of production, distribution systems and/or financial management.
The higher the risk, the higher the likelihood of losses.
Financial risks associated with securities consist of systematic And unsystematic risk.
Systematic (market) risk – this is the risk of a fall in the securities market as a whole. It is independent of a particular security and is therefore non-diversifiable and non-reducible. Systematic risk can change over time and is always present in all markets.
Unsystematic risk – this is a general concept that unites all types of risks associated with this particular security. This risk is diversifiable and reduced. Unsystematic risk combines three groups of risks:
1. Macroeconomic, industry and regional risks :
country;
legislative changes;
inflationary;
currency;
industry;
regional.
Country risk (economic, political, etc.).
Risk of legislative changes.
Inflation risk.
Currency risk.
Industry risk.
Regional risk.
Capital risk.
Selective risk.
Time risk.
Recall risk.
Delivery risks.
Operational risk.
Settlement risk.
Credit (business risk).
Liquidity risk.
Interest rate risk.
Risk of fraud.
Rice. 10.Risks associated with transactions with securities
2. Risks of the enterprise (issuer):
credit (business);
liquidity;
percentage;
fraud.
3. Portfolio management and technical risks :
capital;
selective;
temporal;
revocable;
supplies;
operating;
settlement of settlements.
For successful investment activities, it is necessary to know the types of risks, understand their content and be able to assess the significance of each type of risk.
Country risk - the risk of investing in securities of enterprises under the jurisdiction of a country with an unstable social and economic situation, with unfriendly relations in the country of which the investor is a resident, etc.
Country risk includes political, social, economic, etc. risks.
In particular, political risk is the risk of financial losses due to changes in the political system, the balance of political forces in society, political instability, etc.
Risk of legislative changes - the risk of losses from investments in securities due to changes in their market value, liquidity, etc., caused by the emergence of new or changes in existing legislative norms (laws, presidential decrees, departmental regulations, etc.). The risk of legislative changes may lead, for example, to the need to re-register a securities issue, change the terms or replace issues and cause significant additional costs and losses for the issuer and investor. The issue of securities runs the risk of being invalid; the legal status of intermediaries in securities transactions may unfavorably change, etc.
Inflation risk - the risk that with high inflation, the income investors receive from securities depreciate (in terms of real purchasing power) faster than they grow, and the investor suffers real losses. In world practice, it has long been noted that a high level of inflation destroys the securities market, although quite a lot of ways have been developed to reduce inflation risk.
Currency risk - risk associated with investments in foreign currency securities due to changes in foreign currency exchange rates. Losses due to this risk were incurred in the spring of 1992 and the summer of 1993. Russian investors who owned securities of foreign companies, as well as foreign currency securities of domestic issuers. These losses were caused by the upward trend in the ruble exchange rate.
Industry risk - risk associated with the specifics of individual industries. From the standpoint of this type of risk, all industries can be classified into: a) subject to cyclical fluctuations (industry of construction materials, equipment production, etc.) and b) less susceptible to cyclical fluctuations (production of goods for the population and food). In addition, it is possible to classify industries into venture (emerging), “dying”, stably operating, rapidly growing young industries based on the most advanced technology (classification according to the life cycle stage in which the industry is located). Industry risks are manifested in changes in the investment quality and market value of securities and the corresponding losses of investors, depending on whether the industry belongs to a particular type and the correctness of the assessment of this factor on the part of investors.
Regional risk - a risk especially characteristic of single-product areas. Thus, in the early 80s. The economy of the US states of Texas and Oklahoma (gas and oil production) experienced difficulties due to the fall in oil and gas prices. Several of the largest regional banks went bankrupt. Of course, investors who invested their funds in the securities of farms in these areas suffered significant losses.
During a crisis of power, as happened in Russia in 1991-93, regional risks may arise in connection with the political and economic separatism of individual regions. In any case, during this period it would hardly be a wise decision for investors to invest in republics within the Russian Federation that advocate political and economic independence.
In the Russian economy, high levels of regional risks are also associated with the depressed state of the economy of a number of regions (with the predominance of military industry, heavy industry, especially sensitive to the crisis, light industry with the expansion of imported goods, etc.).
Credit (or business) risk - the risk that the issuer of a debt security will be unable to make interest and/or principal payments. The most typical example of the implementation of such a risk in our country is government debt obligations for the population (freezing in 1992 payments on an internal loan for the population in 1982; long-term unconfirmation of commodity payments on a targeted interest-free loan for the population in 1990, etc.).
Liquidity risk - risk associated with the possibility of losses when selling a security due to a change in the assessment of its quality. Liquidity risk is now one of the most common in the Russian market. For example, securities purchased in the fall of 1991. at the height of the hype at prices 1.5-2 times higher than the face value, they were sold in the spring of 1992. at significantly lower rates, or were not sold at all. The market refused to see them as goods. Another example is the collapse of bearer securities (MMM and others) in the summer of 1994. after a speculative boom and the creation of an absolutely liquid market for these securities in the winter-spring of 1994. The reason for this was not only the general decline of the market, but also a more realistic assessment of what a particular issuer is (say, an exchange where, during the exchange only a few transactions are concluded per day; a financial or investment company whose capital is collected to pump funds or cover losses from the “eating up” of authorized funds in other commercial structures, etc.).
Interest rate risk - the risk of losses that investors and issuers may incur due to changes in market interest rates. As is known, an increase in the market interest rate leads to a decrease in the market value of securities, especially bonds with a fixed interest rate. When the interest rate increases, a mass dump of securities issued at lower (fixed) interest rates and which, according to the terms of the issue, may be returned to the issuer ahead of schedule, may also begin. Interest rate risk is borne by an investor who has invested his funds in medium- and long-term securities with a fixed interest rate at a current increase in the average market interest rate compared to a fixed level (i.e., the investor could receive an increase in income due to an increase in interest rate, but cannot release his funds , invested under the above conditions). Interest rate risk is borne by the issuer issuing medium- and long-term securities with a fixed interest rate at a current decrease in the average market interest rate in comparison with the fixed level (i.e., the issuer could attract funds from the market at a lower interest rate, but he is already bound by the issue of securities made by him papers).
In an inflationary economy (such as the Russian one), with rapid absolute changes in the value (both upward and downward) of interest, this type of risk has high values for short-term securities.
Capital risk - the risk of a significant deterioration in the quality of the securities portfolio, which leads to the need for large-scale write-offs of losses and, as a consequence, to significant losses and may affect the capital of the portfolio holder, causing the need to replenish it by issuing new securities.
Selective risk - the risk of incorrect selection of securities for investment in comparison with other types of securities when forming a portfolio.
This is a risk associated with an incorrect assessment of the investment qualities of specific types of securities.
Time risk - the risk of issuing, buying or selling a security at the wrong time, which inevitably entails losses.
Recall risk - the risk of loss for the investor in the event that the issuer calls the callable bonds due to the excess of the fixed level of interest payments on them above the current market interest.
Some types technical risks related to the securities market:
Supply risk - the risk of failure to fulfill obligations for the timely delivery of securities held by their seller. This risk is especially great when carrying out speculative strategies with securities based on short sales (the seller sells a security that he does not have in stock and which he is only going to purchase at the time of delivery). This risk can also materialize due to technical reasons (imperfection of the depository and clearing network).
Operational risk - the risk of losses arising from malfunctions in the operation of computer systems for processing information related to securities, poor quality of work of technical personnel, violations in the technology of securities transactions, computer fraud, etc.
Settlement risk - the risk of losses on transactions with securities associated with deficiencies and violations of technology in the payment and clearing system.
Let's take a closer look, investment "internal" risks:
risk of lost profits;
risk of decreased profitability;
risk of direct financial losses.
Risk of lost profits - this is the risk of indirect (collateral) financial damage (lost profit) as a result of failure to implement any activity (for example, investing, insurance, hedging, etc.).
Risk of decreased profitability may arise as a result of a decrease in the amount of interest and dividends on portfolio investments, deposits and loans. The risk of a decrease in profitability includes the following types:
a) interest rate risks,
b) credit risks.
A)To interest rate risks refers to the risk of losses by commercial banks and other financial institutions as a result of the excess of interest rates paid by them on borrowed funds over the rates on loans provided. Interest rate risks also include the risk of losses that investors may incur due to changes in dividends on stocks, interest rates on bonds and other securities.
b)Credit risk - the risk of non-payment by the borrower of the principal debt and interest due to the lender. Credit risk also refers to the risk that the issuer of debt securities will be unable to pay interest and/or principal.
Risks of decreased profitability include currency risks, inflation risks, etc.
Risks of direct financial losses include the following types: operational risk, selective risk - instrument risk, bankruptcy risk.
A)Operational risks represent a danger of losses from exchange and over-the-counter transactions. These risks include: the risk of non-payment on transactions and other risks associated with market transactions. In order to manage them, it is necessary to take special measures, both organizational and technological. Therefore, netting systems are introduced, as a rule, at high turnover, where the use of these measures is still cheaper than dealing with errors. Risks associated with the features of the system (in this case, clearing) are also called systemic risks , because they are generated by the system itself. Among the prevention of such risks, one can point out the presence of special insurance funds for each trading participant, which they turn to in case of need to compensate for losses so that the balance is equal at the end of the session. The use of these funds occurs on the basis of pre-agreed rules and procedures.
b)Selective risks - these are the risks of choosing the wrong method of investing capital, the type of securities for investment in comparison with other types of securities when forming an investment portfolio. Otherwise they can be classified as instrument risk .
V)Risk of bankruptcy represents a danger as a result of the wrong choice of investment method. As a consequence, this may be a complete (or partial, taking into account the liquidation value) loss of the investor’s equity capital. Unfortunately, it is precisely this “borderline” situation that is typical for the Russian securities market, when the person who has taken over the management of the investment cannot pay off its obligations. The means of resolving risks can be the following forms of behavior of their potential or actual carriers: avoiding, retaining or transferring risks .
Risk avoidance means simply avoiding actions associated with risk. However, avoiding risk for investors often means giving up profits, which in itself becomes economically difficult to explain.
Risk retention - this is leaving the risk to the investor, i.e. on his responsibility. Thus, an investor, when investing venture capital (investments of own capital in start-up private companies are usually called venture (risk) capital), is confident in advance that he can cover the possible loss of venture capital using his own funds.
Transfer of risk means that the investor transfers responsibility for the risk to someone else, such as an insurance company. In this case, the transfer of risk occurred through risk insurance.
In Western practice investment quality- this is an assessment of how liquid a security is, low-risk with a stable exchange rate, and the ability to earn interest that exceeds or is at the level of the average market interest.
It is generally accepted that as the risks borne by a given security decrease, its liquidity increases and its profitability decreases. Graphically this can be depicted as follows:
Profitability Liquidity
For the purposes of further research, a more important concept is risk reduction - this is a reduction in the probability and magnitude (volume) of losses.
19. Risk reduction techniques
Various techniques are used to reduce the risk.
The most common are:
diversification;
limiting;
insurance;
immunization;
hedging 14 .
Limitation - this is setting a limit, i.e. maximum amounts of expenses, sales, loans, etc. More interesting for us will be the problem of limiting, presented in a particular version associated with limited orders for the purchase and/or sale of securities, which will be discussed in the section revealing the problems of price (market) manipulation. Also, the problems of limiting are directly related to the guarantee provision - the most important link in the risk management system in the derivatives market. Examples could be both a limit on price changes during a trading session and a limit on the total number of open positions. This category of reducing the risk of direct financial losses also includes the establishment of a maximum (minimum) size of the deposit margin.
Insurance is also a way to reduce the degree of risk and is expressed in the fact that the investor is ready to give up part of his income in order to avoid risk, i.e. he is willing to pay to reduce the risk to zero. Thus, the economic essence of insurance lies in the creation of a reserve (insurance) fund. It is widely practiced in the stock market to create reserves to cover unforeseen expenses from the depreciation of securities. Therefore, along with the term “insurance,” the term “reservation of resources” is often used to compensate for damage from the expected manifestation of various risks. If we draw a conclusion, it becomes logical that insurance or resource reservation does not aim to reduce the likelihood of risks occurring, but is aimed primarily at compensating for material damage from the occurrence of risks. Here we are talking more about risk as a given, which is very difficult, and even possible, to manage. The regulation of banking activities by the state is based on this principle.
Currently, new types of insurance have appeared, for example, title insurance, business risk insurance, etc.
Title - legal ownership of real estate, which has a documentary legal side. Title insurance is insurance against events that happened in the past that may have consequences in the future. It allows real estate buyers to expect compensation for losses incurred if the court terminates the real estate purchase and sale agreement.
Entrepreneurial risk is the risk of not receiving expected income from business activities (Article 993 of the Civil Code of the Russian Federation). Under a business risk insurance contract, only the business risk of the policyholder himself can be insured and only in his favor, i.e. It is impossible to conclude such an agreement in favor of third parties. The insured amount must not exceed the insured value of the business risk. The insured value of business risk is the amount of business losses that the policyholder could be expected to incur if the insured event occurred. But in financial markets the term insurance is used more as a hedge.
Hedging - this is price risk insurance using futures (or options) contracts.
It is based on the difference in prices on the futures market and the real commodity market. It is more often used by participants in the real goods market (that is, companies that purchase raw materials, process them and produce goods, as well as trading organizations).
“Hedging is a system of concluding futures contracts and transactions that takes into account probable future changes in exchange rates and has the goal of avoiding the adverse consequences of these changes.”
Hedging in the classical sense is used in banking and stock exchange activities to refer to various methods of insuring currency risks.
If diversification is directed against the risk associated with deviations in the term structure of interest rates, then the risks from general changes in the level of interest rates can only be reduced by immunization.
Immunization (immunization theory offers a way to protect against one-time shifts in the term structure, such as interest rates) by ensuring that the length matches the expected tenure period ( it is related to duration) refers to the statistical method. Term "immunization" ( immunization), first introduced by Redington, is used to refer to a method of eliminating interest rate risk based on the careful balancing of price risk and reinvestment risk.
For immunization to be effective, it requires frequent revision and potentially recurring portfolio rebalancing in a volatile interest rate market.
Immunization can be used to achieve one of three goals:
formation of a financial flow corresponding to a specific index;
guaranteeing future payments on outgoing flow 15 ;
receiving a certain income.
The immunization procedure is based on Samuelson's immunity theorem, derived independently by Samuelson in 1945 and Redington in 1952, which states that interest rate risk can be hedged by equalizing durations
Macauley of assets and liabilities.
20. Investment funds
All investors in the securities market can be divided into 3 groups: individual (individuals), corporate And institutional .
Institutional investors - these are investors who have free funds for investing in securities due to the nature of their activities.
Institutional investors include all types of investment funds, non-state pension funds. Insurance organizations.
From an economic point of view investment fund is a mechanism for accumulating funds from small investors (legal entities and individuals) into a single cash pool and subsequent professional management of these funds as a single portfolio. In another way, we can say that an investment fund is a mechanism for collective investment in the securities market.
We can highlight a number of main advantages that an investment fund provides to its investors compared to individual investing.
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Professional asset management of investment funds . Working in the financial market requires special knowledge and training that the general public does not possess. In addition, effective investment requires up-to-date information about financial assets, professional participants in the securities market, the state and trends of the market, etc., the analysis of which (information) is carried out by entire departments. But this is not enough. It is not enough to make the right professional decision. It is also necessary to be able to implement this decision in practice in a timely manner. Naturally, even large individual capital does not have such capabilities as a whole. There is a need to seek help from financial market professionals. One of the possibilities is investing through investment funds, the assets of which are managed only by professional participants in the securities market who have appropriate permission from the state (license).
Reducing investment risk . All activity in financial markets is associated with risk, that is, with the possibility of losses, both invested amounts and income from them. Investments in an investment fund do not eliminate risk, but significantly reduce it, primarily through diversification of the fund's assets. The fund's investment portfolio is formed from many types of securities with different returns and degrees of risk. Thus, the risk for all investors in the investment fund is averaged and reduced compared to the risk of individual investments. Even a small investment made through an investment fund, being depersonalized in the “common pot,” provides the necessary degree of investment diversification, which is impossible when a small investor enters the financial market independently.
Reducing investment management costs . An investment fund as a large investor provides an opportunity to reduce the cost of managing an investment portfolio in two ways: firstly, by acting as a wholesale buyer, the investment fund can receive significant price benefits compared to a small retail buyer, as in any other market. Secondly, the investment fund reduces operating and overhead costs per unit of investment (costs for re-registration of property rights, information and analytical services, etc.).
Increased reliability of investments in investment funds . Since the activities of investment funds affect the interests of a huge number of small investors, the investment funds themselves are very strictly controlled by the state. In developed financial markets, investment funds operate in accordance with special laws adopted in individual countries. The rights of investors are protected legally and in fact through effectively operating control mechanisms over investment funds.
High liquidity of investments in investment funds . The liquidity of investments in developed financial markets is ensured by the fact that the investor, at his own discretion, can sell his “share” at any time either on the secondary market - on the stock exchange, or by demanding the redemption of this “share” by the investment fund itself (or its management company).
Selective risk is the risk of incorrectly choosing securities for investment in comparison with other types of securities when forming a portfolio. This risk is associated with an incorrect assessment of the investment qualities of securities.
Time risk is the risk of issuing, buying or selling securities at the wrong time, which inevitably entails losses.
There are also more general patterns in the development
high and full stock markets, for example, seasonal fluctuations (securities of trading, agricultural and other seasonal enterprises), cyclical fluctuations (movement of security rates in various phases of macroeconomic reproduction cycles).
The risk of legislative changes is a risk that can lead, for example, to the need to re-register issues and cause significant costs and losses for the issuer and investor. The issue of securities runs the risk of being invalid; the legal status of intermediaries in securities transactions may unfavorably change, etc.
Liquidity risk is a risk associated with the possibility of losses when selling securities due to changes in the assessment of its quality. Now it is one of the most common on the Russian market.
Business credit risk is the risk that the issuer of debt securities will be unable to pay interest and/or principal.
Inflation risk is the risk that with high inflation, the income received by investors from securities depreciate in terms of real purchasing power faster than they grow, the investor suffers real losses. In world practice, it has long been noted that a high level of inflation destroys the securities market, although quite a lot of ways have been developed to reduce inflation risk. AAAAAAAAAAAAAAAAAAAAAAAA
Interest rate risk is the risk of losses that investors may incur due to changes in market interest rates. As is known, an increase in market interest rates leads to a decrease in the market value of securities, especially bonds with a fixed interest rate. When the interest rate rises, a massive “dumping” of securities issued at lower (fixed) interest rates and under the terms of issue by the issuer accepted back early may also begin.
Interest rate risk is borne by an investor who has invested his funds in medium- and long-term securities with a fixed interest rate with a current increase in the average market interest rate compared to a fixed level (i.e., the investor could receive an increase in income due to an increase in interest rate, but cannot release his funds , invested under the above conditions).
Interest rate risk is borne by the issuer issuing medium- and long-term securities with a fixed interest rate with a current decrease in the average market interest rate compared to a fixed level (i.e., the issuer could attract funds from the market at a lower interest rate, but it is already associated with the conditions for issuing securities papers).
In an inflationary economy with rapidly rising interest rates, this type of risk is also important for short-term securities.
Call risk is the risk of loss for an investor in the event that the issuer calls callable bonds due to the excess of the fixed level of interest payments on them above the current market interest rate.
Political, social, economic, etc. risks - investing in securities of enterprises under the jurisdiction of countries with an unstable social and economic situation, with unfriendly relations with the country of which the investor is a resident. In particular, political risk is the risk of financial losses due to changes in the political system, the balance of political forces in society, and political instability.
Regional risk is a risk especially characteristic of single-product areas. Thus, in the early 80s, the economies of Texas and Oklahoma (gas and oil production) experienced difficulties due to falling oil and gas prices. Several of the largest regional banks went bankrupt. Of course, investors who invested their funds in the securities of the economy of these regions suffered significant losses.
During a crisis of power, regional risks may arise in connection with the political and economic separatism of individual regions. The high level of regional risks is also associated with the depressed state of the economy in a number of regions.
Industry risk is a risk associated with the specifics of individual industries. From the perspective of this type of risk, all industries can be divided into those subject to cyclical fluctuations, dying, stably operating, and rapidly growing.
Industry risks are manifested in changes in the investment quality and market value of securities and the corresponding losses of investors, depending on whether the industry belongs to a particular type and the correctness of investors’ assessment of this factor.
Enterprise risk (financial and non-financial) is a risk similar to industry risk and largely derived from it. At the same time, the type of behavior of the enterprise makes its contribution to changes in risks. This may be a conservative enterprise that does not pursue a strategy of expansion, universalization and prefers, having occupied one or several niches in the market, to receive all the benefits from the maximum specialization of its work, high quality products (services) and a stable clientele. A different degree of risk will be inherent in the securities of an aggressive enterprise, perhaps one that has just been created. And finally, the behavior of an enterprise may be characterized by moderation, allowing a combination of aggressive and conservative types of behavior.
The risk of an enterprise is of great importance on the Russian stock market (many enterprises are unprofitable, among issuers there is a large proportion of new enterprises, 60-80% of which usually do not survive). The risk of enterprises also includes the risk of fraud (creation of false enterprises, companies for fraudulently raising funds from the public, joint-stock companies for speculative bullish play).
Currency risk is the risk associated with investments in foreign currency securities due to changes in foreign currency exchange rates.
Capital risk is the risk of a significant deterioration in the quality of the securities portfolio, which leads to the need for large-scale write-offs of losses and, as a result, to significant losses and can affect the bank’s capital, causing the need to replenish it by issuing new securities.
Delivery risk is the risk of the seller’s failure to fulfill obligations to timely deliver securities. This risk is especially great when conducting speculative transactions in securities based on short sales (the seller sells a security that he does not have in stock and which he is only going to purchase at the time of delivery). The risk can also materialize due to technical reasons (imperfection of the depository and clearing network).
Operational risk is the risk of losses arising from malfunctions in the operation of computer systems for processing information related to securities, poor quality of work of technical personnel, violations in the technology of securities transactions, computer fraud, etc.
The production and commercial activities of any organization are associated with risks that can be classified according to a set of characteristics: place and time of occurrence, external and internal factors influencing their magnitude, methods of analyzing them and methods of influencing them. However, there are many approaches to risk classification.
The effectiveness of risk management largely depends on the correct identification of risk using a scientifically developed classification system. Such a system includes categories, groups, types, subtypes and types of risks and creates the prerequisites for the effective application of appropriate risk management methods and techniques. Moreover, each risk has its own risk management technique. Let's consider one of the possible options for the classification scheme shown in Fig. 1.2.
Depending on the possible result (risk event), risks can be divided into two large groups: pure and speculative.
Pure risks mean the possibility of obtaining negative or zero result. These include risks natural, environmental, political, transport And part of commercial risks(property, production, trade).
Depending on the main cause ( basic or natural sign), risks are divided into the following categories: natural, environmental, political, transport and commercial.
Natural risks are associated with the manifestation of natural forces: earthquake, flood, storm, fire, epidemic, etc.
Environmental risks are a consequence of environmental pollution.
Political risks associated with the political situation in the country and the activities of the state. Political risks arise when the conditions of the production and trade process are violated for reasons not directly dependent on the business entity.
Rice. 1.2. Risk classification
Transport risks associated with the transportation of goods by transport.
Commercial risks arise due to danger of losses in the process of financial and economic activities associated with uncertainty of the results of commercial transactions.
According to structural characteristics commercial risks are divided into property, production, trade and financial.
Property risks caused by the possibility of loss of property of a citizen/entrepreneur due to theft, sabotage, negligence, overvoltage of technical and technological systems, etc.
Production risks are associated with losses due to stoppage of production due to the loss or damage of fixed and working capital (equipment, raw materials, transport, etc.), as well as risks associated with the introduction of new equipment and technology into production.
Trading risks are associated with the possibility of losses due to delays in payments, refusal to pay during the transportation of goods, non-delivery of goods, etc.
Speculative risks are expressed in the possibility of obtaining both positive and negative results. These include financial risks that are part of commercial risks.
Financial risks associated with the likelihood of loss of financial resources.
There are two types of financial risks:
1) risks associated with the purchasing power of money;
2) risks associated with investing capital (investment risks).
The risks associated with the purchasing power of money include the following types of risks: inflation and deflation risks, currency risks, liquidity risk.
Inflation risk caused by rising inflation: from the point of view of real purchasing power, cash income received depreciates faster than it grows, so the entrepreneur suffers real losses.
Deflationary risk manifests itself in the fact that with the growth of deflation there is a fall in the price level, a deterioration in the economic conditions of entrepreneurship and a decrease in income.
Currency risks represent the danger of foreign exchange losses associated with changes in the exchange rate of one foreign currency in relation to another during foreign economic, credit and other foreign exchange transactions.
Liquidity risks - These are risks associated with the possibility of losses when selling securities or other goods due to changes in the assessment of their quality and use value.
Investment risks include the following subtypes of risks: risk of lost profits; risk of decreased profitability; risk of direct financial losses.
Risk of lost profits - this is the risk of indirect (collateral) financial damage (lost profit) as a result of failure to implement any activity (for example, insurance, hedging, investing, etc.).
Risk of decreased profitability may arise as a result of a decrease in the amount of interest and dividends on portfolio investments, deposits and loans.
Portfolio investment are associated with the formation of an investment portfolio and represent the acquisition of securities and other assets.
Risk of decreased profitability includes the following types: interest rate risks and credit risks.
Interest risks are associated with the risk of losses that commercial banks, credit institutions, investment institutions, and selling companies may incur as a result of the interest rates they pay on funds raised exceeding the rates on loans provided. Interest risks also include the risks of losses that investors may incur due to changes in dividends on shares, interest rates on bonds, certificates and other securities in the securities market.
This type of risk, when interest rates rise rapidly in an inflationary environment, is important not only for medium- and long-term fixed-interest securities, but also for short-term securities.
Credit risk- the risk of non-payment by the borrower of the principal debt and interest due to the lender. Issuers who issue debt securities but are unable to make interest or principal payments are exposed to credit risk.
Credit risk may also be a type of risk of direct financial loss.
Risks of direct financial losses include the following types: exchange risk, selective risk, bankruptcy risk, and credit risk.
Exchange risks represent a danger of losses from exchange transactions. These risks include: the risk of non-payment on commercial transactions, the risk of non-payment of brokerage firm commissions, etc.
Selective risks(from Latin selectio - choice, selection) are associated with the wrong choice of the method of investing capital, the type of securities for investment in comparison with other types of securities when forming an investment portfolio.
Risk of bankruptcy- the danger of choosing the wrong method of investing capital, the entrepreneur’s complete loss of his own capital and his inability to pay off his obligations.
Financial risk is a function of time. Typically, the degree of risk for a given financial asset or investment option increases over time. For example, if foreign currency rates rise against the Russian ruble, then the losses of importers from the moment the contract is concluded until the payment deadline for the transaction also increase.
^ 38) Credit risks: exchange, selective and bankruptcy
The risks of direct financial losses include the following types: exchange risk, selective risk, bankruptcy risk.
Exchange risks represent the danger of losses from exchange transactions. These risks include: the risk of non-payment on commercial transactions, the risk of non-payment of brokerage firm commissions, etc.
Selective risks (from the Latin selectio - choice, selection) are the risks of incorrectly choosing the method of investing capital, the type of securities for investment in comparison with other types of securities when forming an investment portfolio.
The risk of bankruptcy is a danger resulting from the wrong choice of the method of investing capital, the complete loss of the entrepreneur's own capital and his inability to pay off his obligations. As a result, the entrepreneur becomes bankrupt.
^
39) Risks of lost profits and decreased profitability
The risk of lost profits is the risk of indirect (collateral) financial damage (lost profit) as a result of failure to implement any activity or stop business activities.
^ Risk of decreased profitability may arise as a result of a decrease in the amount of interest and dividends on portfolio investments, deposits and loans.
Portfolio investments are associated with the formation of an investment portfolio and represent the acquisition of securities and other assets. The term "portfolio" comes from the Italian "Porte foglio" meaning the totality of securities that an investor holds.
The risk of decreased profitability includes the following types: interest rate risks and credit risks.
TO interest rate risks refers to the risk of losses by commercial banks, credit institutions, and investment institutions as a result of the excess interest rates they pay on borrowed funds over the rates on loans provided. Interest risks also include the risks of losses that investors may incur due to changes in dividends on shares, interest rates on the market for bonds, certificates and other securities.
An increase in market interest rates leads to a decrease in the market value of securities, especially fixed-interest bonds. When the interest rate increases, a mass dump of securities issued at lower fixed interest rates and, according to the terms of the issue, accepted back early by the issuer, may also begin. Interest rate risk is borne by an investor who has invested in medium- and long-term securities with a fixed interest rate at a current increase in the average market interest rate compared to a fixed level. In other words, the investor could receive an increase in income due to an increase in interest, but cannot release his funds invested under the above conditions.
Interest rate risk is borne by the issuer that issues medium-term and long-term securities with a fixed interest rate at a current decrease in the average market interest rate in comparison with the fixed level. In other words, the issuer could attract funds from the market at a lower interest rate, but he is already bound by the issue of securities.
This type of risk, with rapid growth of interest rates in conditions of inflation, is also important for short-term securities.
^ Credit risk- the risk of non-payment by the borrower of the principal debt and interest due to the lender. Credit risk also refers to the risk that the issuer of a debt security will be unable to pay interest or principal.
Credit risk can also be a type of risk of direct financial loss.
^
40) Currency and liquidity risks
Currency risks represent the danger of foreign exchange losses associated with changes in the exchange rate of one foreign currency in relation to another during foreign economic, credit and other foreign exchange transactions.
Liquidity risks are risks associated with the possibility of losses when selling securities or other goods due to changes in the assessment of their quality and use value.
Investment risks include the following subtypes of risks:
1) risk of lost profits;
2) risk of decreased profitability;
3) the risk of direct financial losses.
^ 41) Inflation and deflation risks
Inflation risk is a risk caused by an unexpected increase in production costs due to the inflationary process.
The reasons for the emergence of inflationary processes are ambiguous and usually arise not only from the excess of the money supply over the commodity supply, but also from structural imbalances and imperfections in the economic mechanism. Therefore, the reason for the emergence of inflation risks is problems of a general economic nature in terms of macroeconomic policy.
The realization of this group of risks is one of the most significant causes of losses for the company. They can manifest themselves in the following forms:
1) rising prices negatively affect the quality of development plans;
2) a consequence of inflationary processes is the reluctance of the population to buy certain goods, the purchase of which, from their point of view, does not sufficiently protect their funds, which can lead to a significant decrease in sales volumes of a number of firms;
3) in conditions of high inflation, it becomes almost impossible to expand the activities of the enterprise (for example, replacing equipment), due to the difficulty of obtaining bank loans and the like;
4) inflation processes are the cause of such risks that are associated with a decrease in the purchasing power of consumers, which negatively affects the activities of almost all commodity producing firms;
5) high inflation levels cause negative changes in the investment climate of the economy as a whole. Thus, inflation risk, which is almost always present in a market economy, can cause significant losses for business entities if it materializes.
Deflation is the process of removing from circulation part of the excess money supply issued during a period of inflation. Its consequence is deflationary risk, which can manifest itself in:
a) a fall in the price level for goods and, accordingly, a decrease in the profits of firms;
b) the likelihood of tax rates increasing;
c) the likelihood of an increase in bank discount rates, which may have a particularly negative impact on the profitability of the latter;
d) government intervention in issues related to the regulation of foreign economic relations of enterprises.
Thus, deflationary processes can also cause entrepreneurial risk. As world experience shows, their forecasting during the period of macroeconomic stabilization is important for economic entities.
^ 42) The essence of financial risks
Financial risk arises in the process of relations between an enterprise and financial institutions (banks, financial, investment, insurance companies, stock exchanges, etc.). The reasons for financial risk are inflation factors, an increase in bank discount rates, a decrease in the value of securities, etc.
Financial risks are divided into two types:
1) risks associated with the purchasing power of money;
2) risks associated with investing capital (investment risks).
The risks associated with the purchasing power of money include the following types of risks: inflation and deflation risks, currency risks, liquidity risk.
Inflation means the depreciation of money and, accordingly, an increase in prices. Deflation is the reverse process of inflation; it is expressed in a decrease in prices and, accordingly, in an increase in the purchasing power of money.
Inflation risk is the risk that when inflation rises, cash income received depreciates in terms of real purchasing power faster than it grows. In such conditions, the entrepreneur suffers real losses.
Deflationary risk is the risk that as deflation increases, a fall in the price level occurs, a deterioration in the economic conditions of business and a decrease in income.
^
43) Insurance. Economic sense
Insurance is an economic category, a system of economic relations that includes a set of forms and methods for the formation of target funds of funds and their use to compensate for damage caused by various unforeseen adverse events (risks). Expresses the functions of forming a specialized insurance fund; compensation for damage; warning of an insured event.
That. insurance is a special mechanism of a market economy that helps to “smooth out” negative economic situations, restores the full functioning of legal entities that have failed due to one reason or another, and is also a huge potential investor capable of investing real capital in the development of the domestic industry.
Insurance is associated with the economic need for entities to have reserve funds as a mandatory element of social reproduction in connection with unforeseen phenomena and accidents.
^
44) Limitation and securitization
Risk reduction can be carried out using various methods, including through the use of methods such as diversification, securitization, and limiting.
Securitization - dividing a lending transaction into two parts
(development of loan terms and conclusion of an agreement; lending) with the implementation of each of these parts by different banks.
Limitation - setting limits on investments, batches of goods purchased, loans issued, etc.
^
45) Structure of the illegal economy
In general, the shadow economy can be defined as an area in which economic activity is carried out outside the framework of the law, i.e. transactions are made without complying with the law, legal norms and formal rules of economic life.
The illegal economy includes:
The unofficial economy is a legal type of economic activity within which it is hidden in order to minimize the costs of producing goods and services.
Criminal economy is an economic activity associated with a direct violation of laws, criminal and civil codes and an encroachment on property rights. This type of business is carried out by mafia structures (promotion and sale of weapons, prostitution, production and sale of alcoholic beverages).
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46) The price of obeying the law in Russia
“the price of obedience to the law” is the costs of law-abiding behavior. An entrepreneur in a legal business must bear one-time “access costs” associated with obtaining the right to engage in a certain type of economic activity. Having received official sanction for his business, he must constantly bear the costs of “continuing to operate within the law”: pay taxes and social payments, submit to bureaucratic regulation of production standards, comply with mandatory standards when managing personnel, incur losses due to the ineffectiveness of legal proceedings in resolving conflicts or debt collection. 21.7% of the cost of law enforcement comes from taxes, 72.7% from other legally required purposes, and the remaining 5.6% from utility costs. In other words, of every $100 a small industrial firm must pay to stay within the law, $22 is for taxes, $73 for other legally required purposes, and $5 for utilities.
Taxes are not the main problem, and it is not tax policy that determines the choice - to act within the law or illegally. The core of the problem lies in other legally required expenses. Business people must obey a host of rules, from filling out endless amounts of paperwork at government offices to rigidly administering their staff. This seems to have a decisive influence on the choice between doing business legally or illegally.
By making a choice in favor of an illegal organization, an entrepreneur gets rid of the “price of obedience to the law,” but is forced to pay the “price of illegality.”
Taxes on legal activities apply to large and largest legal businesses. For them, it is impossible to hide their activities from the state tax inspectorate. However, since this sector is the main source of state income, it, using the political lobby, strives to reduce the tax burden and achieve various economic privileges and tax benefits for itself. If this tactic is successful, then competition is limited and an artificial environment is created for the functioning of the legal sector. Thus, increasing taxes leads to a decrease in the efficiency of the legal sector and further widens the gap between it and the competitive shadow economy. The situation in Russia is much more complicated: it is quite difficult to distinguish between purely legal and purely illegal sectors of the economy. Almost every enterprise, in one proportion or another, contains both legal and illegal activities. Why do bad laws prevail in Russia? The fact is that the government is primarily concerned with redistributing existing income rather than creating new wealth. Therefore, the best minds of the country and the energy of entrepreneurs are spent not on achieving real progress, but on waging redistribution wars. As a result, it turns out that there is no equality of people before the law, because for some the laws promise privileges, while for others they are not available.
The costs of obeying the laws greatly influence the tactics and strategy of a business and determine both the methods of doing business and the results for any production technology. These costs change the distribution of resources and increase production costs in general, limit the mobility of production factors, and increase transaction costs. Regardless of the effectiveness of the technology used, it changes the profitability of firms. A company's prosperity depends less on how well it performs and more on the costs imposed on it by law. The entrepreneur who is better at manipulating these costs or his connections with officials is more successful than the one who is concerned only with production.
^
47) Costs of registering legal entities in 3rd world countries
Costs for registering a legal entity in 3rd world countries
a country | Time spent (days) | Costs in monetary form (as a percentage of annual profit) |
Bolivia | 15-30 | 0,3-3 |
Brazil | 31-60 | 3-8 |
Chile | 12-65 | 3-6 |
Ecuador | 60-240 | 15-24 |
Mexico | 83-240 | - |
Uruguay | 75-90 | 6-160 |
Guatemala | 179-525 | 4-9 |
Venezuela | 170-310 | 6-24 |
- Open market operations are a quick and effective method of influencing the money supply
- Basic principles for evaluating investment projects
- Principles for assessing the effectiveness of investment projects
- Stages of formation and periods of development of the world economy Stages of world development in the 20th century