Abstract

Financial risk management refers to the practices used by corporate finance managers and
accountants to limit and control uncertainty in the firms total portfolio. Financial risk
management aims to minimize the risk of loss from unexpected changes in the prices of
currencies, interest rates, commodities, and equities. In the context of international accounting,
financial risk management also contains an element of political, legal and culture risk
exposure to uncertainty in the outcomes of business transactions and asset transfers that comes
with most international business operations. Accountants are closely involved in the analysis and
evaluation of the financial effects of currency movements and exchange rates, tax regimes and
business laws, as well as risks of hostile takeover, expropriation and economic downturns that
differ in every country from Singapore and Malaysia to Japan, America and beyond.
Risk management has become an integral part of international business strategy, and accountants
use quantitative tools to measure and analyze risk. The job of the Chief Financial Officer is to
identify and address all types of risk, establish support and control mechanisms for dealing with
it, and set the course for the risk management team in terms of its policies and objectives.
This study examines the financial practices employed for this purpose, including diversification
(the combination of dissimilar investments that offset each other); asset allocation (use of safe or
low-risk investments to mitigate losses from high-risk holdings); and hedging (use of financial
contracts such as currency futures, options or swaps to cancel out possible losses in transactions
or holdings). These practices are examined in light of their applications for international
business, where accountants must cope with many more types and degrees of risk. The study also
review the areas of financial analysis that concern the firms long-term strategy, such as
investment risk (market analysis, portfolio management, asset price volatility), credit risk
(individual and corporate), and insurance risk (property, product and business liabilities). The
study argues that the specialist in international accounting needs to familiarize herself with local
conditions, regulations and policies that affect each of these areas of finance.
To keep track of the myriad details of a risk management system, managers now rely upon a
wide range of new tools and technologies- computer-based trading systems, telecommunications
technology, decision support systems that quantify risk factors, and so on. Intelligent risk
management helps a company stabilize cash flows, reduce risk of insolvency, manage foreign
taxes, and focus on its primary business in each country and market. It is particularly critical in
Southeast Asia today, where complex overseas operations are common for resident, host and
guest firms alike.
In this study, the financial risk management is examined from the perspective of international
accounting, to show how risk mitigation applies to the multinational firms with complex global
transactions and assets. The studies analyze the interplay of currencies, exchange rates, interest

rates, and accounting systems. Financial risk management is a specialized area of international
accounting that requires specific training, tools and techniques, if one is to be successful in
mitigating risk for an international business.