Personal Finance Reviewer PDF

PERSONAL FINANCE REVIEWER Lesson 7: RISK MANAGEMENT Step 4: Treat the Risk Risk is defined in financial terms as the This is done by connecting with the chance that an outcome or investent’s...

PERSONAL FINANCE REVIEWER Lesson 7: RISK MANAGEMENT Step 4: Treat the Risk Risk is defined in financial terms as the This is done by connecting with the chance that an outcome or investent’s experts of the field to which the risk actual gains will differ from an expected belongs. outcome or return. Step 5: Monitor and Review the Risk Assess, Adjust, and Act. Loss refers to some type of physical injury, damage to property, or absence of property Risk of Financial Resources is a serious or other assets. The loss might be personal kind of risk; it could jeopardize your future. in nature, such as a broken leg or an illness. With this kind of risk, more than current The loss could be damage or removal of income is threatened. You may lose your money or property. ability to earn in the future or assets you acquire in the future. The likelihood of a risk actually resulting in a loss called probability. Financial Loss refers to cost in terms of money. The loss can be big or small. Small Personal Risk means you could lose possible losses should be assessed something of personal value to you. differently from large possible losses. RISK TAKING RISK STRATEGIES ❖ Physical Risk ❖ Financial Risk ❖ Reducing Risks ❖ Social Risk Finding ways to change actions or events so that your chance for loss is less. ❖ Avoiding Risks You stop the behavior or avoid the situation that leads to the risk. ❖ Transferring Risks When you face substantial risk that you cannot or do not wish to reduce Financial Risk Management is the process or avoid. of identifying the potential downsides as ❖ Assuming Risks well as the potential rewards of an Taking responsibility for potential investment. It involves evaluation and harm to oneself or others. prioritization of risks minimization, monitoring, and control of the impact or Risk Assessment means identifying what probability of those risks occuring. the risks are and deciding how serious they are. When you understand your risks and RISK MANAGEMENT PROCESS what you have to lose, you can make better choices. Step 1: Identify the Risk Knowing that you are more prepared for the unexpected, a portfolio of DIFFERENT RISK IN FINANCE investments that are better able to protect your family, assets, and Capital Risk refers to the probability plans against the unknown. of a business losing value on its Step 2: Analyze the Risk capital, i.e., liquid securities, To determine the severity and factories, and equipment. seriousness of the risk, it is Country Risk refers to the likelihood necessary to see how many of the government of another nation business functions the risk affects. defaulting on its financial Step 3: Evaluate the Risk or Risk commitments. Assessment Default Risks are about borrowers It is important to rank risks because not being able to meet financial it allows the organization to gain a obligations. Specifically, meeting holistic view of the risk exposure of financial obligations when they the whole organization. become payable. PRTTYJSSY :) Listen to feedback the interest rate a party earned on > Refer to experiences investments such as bonds. > Identify primary causes Liquidity Risk refers to the > Collaborate with employees probability that a company cannot > Conduct research meet its debt obligations. > Revise policies Specifically, whether it can only meet its obligations if it incurs unacceptably large losses interest Lesson 8: BUYING DECISION rate risk. Operation Risks look at the Buy is a term used to describe the likelihood of loss resulting from purchase or acquisition of an item or service inadequate internal processes. that’s paid for via an exchange of money or Political Risk is the exercise of another asset. political power is the root cause of political risks in the world of Systematic Decision Making is the international business. How leaders process of making choices that reflect your exercise political power determines goals by considering all of the pros and whether government actions cons along with the costs. threaten a company’s value. Refinancing Risk refers to the Financial Responsibility occurs when you possibility that a borrower cannot plan your earning, spending, and saving so borrow to repay current debts. Many that you meet your financial goals. lending arrangements include balloon payments at the end of the Financial Irresponsibility failing to live up temptation's risk. your financial obligations to meet your goals Reinvestment Risks refer to the and needs. likelihood that a party may cancel or stop a particular investment. A buying plan is an organized method for Additionally, the investor might not making good buying decisions. It will help be able to find a similarly attractive you stretch your limited resources. alternative investment. Sovereign Risk focuses on the 5 STAGES OF DECISION PROCESS likelihood of a government defaulting (JOHN DEWEY) on its sovereign debt or other financial obligation.It also refers to Stage 1: Problem/ Need Recognition the risks investors run when Without knowing what the customer investing in a specific country. These needs, they will not be enticed to risks also exist when a party purchase the product. provides money to its government. PRTTYJSSY :) Increased purchasing power certain interest rate for a set of period of > Security time. > Convenience > Leverage BENEFITS OF CREDIT > Benefits (Rewards Program) 1. Convenience & Rewards PRTTYJSSY :) Finance charges an item purchased on secured loan with high-interest rate credit and paid for overtime costs more that uses your title on your vehicle or because of the finance charge. property as collateral. > Reduction of future buying power when you use credit, you tie up future income by Lesson 10: INVESTMENT CONCEPT & committing to make payments. STRATEGY > Overspending buying on credit can lead Investment is an asset or item that is to overspending purchased with the hope that it will generate income or will appreciate in the future. > Identity theft having a credit card means that you run the risk that your account In Finance. Investment is a monetary asset information could be stolen. purchased with the idea that the asset will provide income in the future or will be sold at a higher price for a profit. Lesson 9: PRESERVING YOUR In Economic. Investment is the purchase of CREDIT goods that are not consumed today but are used in the future to create wealth. CONTRACTUAL RIGHTS AND DUTIES (RENT) CHARACTERISTICS OF INVESTMENT Contract is a legally binding agreement that ❖ Risk specifies the rights and duties of each party The loss of the principal amount of to the agreement. an investment. ❖ Return Consideration something of value Expected rate of return from exchanged for something else of value. investment. ❖ Safety Lease is a written agreement that allows a The protection of investor principal tenant to use the property for a set period of amount and expected rate of return. time.(Run for 6 months, years, or longer) ❖ Liquidity It refers to an investment ready to Rental Agreement a written contract that convert into a cash position. allows you to leave anytime as long as you ❖ Marketability give the required notice. (Month-to-month Refers to buying and selling of agreement) securities in the market. ❖ Concealability LONG TERM DEBT OPTIONS Means investment to be safe from social disorders, government Long-term debt is a loan that is payable confiscations or unacceptable levels over a period longer than a year. of taxation, property must be concealable and leave no record of Amortization process of dividing up your income received from by its use or debt obligation, plus interest, into equal sale. monthly payments over a set period of time. ❖ Capital Growth Refers to appreciation of investment. REDUCE AND AVOID CREDIT COSTS ❖ Purchasing Power Stability Refers to the buying capacity of ❖ Predatory Lending investment in market. Unfair, deceptive, and fraudulent ❖ Stability of Income loan practices. Some loan practices Refers to constant return from an are illegal. investment. ❖ Loan Shark A person who offers illegal loans at a very high interest. PRTTYJSSY :)