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Risk Assessment
Risk assessment is the process of evaluating potential financial losses arising from specific risk factors.
Meaning in Practice
Institutions analyze quantitative models, stress scenarios, and historical data to measure risk exposure. The results guide capital allocation and risk mitigation strategies.
Why It Matters
Accurate assessment ensures sufficient capital buffers and informed strategic decisions. It supports regulatory compliance and financial resilience.
Market Impact
Strong risk assessment reduces unexpected losses and earnings volatility. Weak analysis can result in capital shortfalls and investor uncertainty.
Example
A bank evaluates potential credit losses under adverse macroeconomic conditions before approving large loan exposures.
Related Terms
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