A financial risk manager analyzes a business' daily functions and works to minimize the activities that could negatively effect a business' bottom line. Financial risk is the possibility that a business cannot meet its financial obligations to its creditors. These creditors could be vendors, the government, shareholders or even a business' employees. A financial risk manager takes all of these possibilities into consideration and makes suggestions or creates processes and procedures to lower the possibility of financial hardship as much as possible.
One of the tools that a financial risk manager utilizes is forecasting, also referred to as hedging. By taking the current economic atmosphere into consideration and comparing it to similar atmospheres in the past, a financial risk manager can create programs or take preventative measures to ensure that a business can meet its financial obligations. The job is not always a welcomed one in a business, because the position often requires a financial risk manager to object to a business' new idea for products or services. If the new idea carries too much risk, such as when it could result in a large loss of funds for the business if the product or service fails, and if the possible profits of the new venture are not enough to make the risk worth it, the financial risk manager can refuse to approve the project.
An example of a financial risk manager is a loan underwriter. If a business or individual approaches a lending institution and requests funding, the underwriter reviews the application, the financial health of the potential borrower and whether the loan will make the bank money or possibly lose money. If the underwriter feels that the probability of the borrower defaulting on the loan is too high, he or she can refuse the loan, thereby lowering the risk of the bank losing money on the transaction. If, however, the underwriter feels that the borrower will indeed repay the loan, then the underwriter will approve the loan, and the bank will enjoy a profit from the transaction in the form of loan fees and accrued interest.
A financial risk manager usually holds a bachelor's degree in business, such as management or accounting. Many risk managers are accountants and therefore also possess a license and certification as an accountant. There are also certifications available in risk management. These typically require one to hold a bachelor's degree in finance, to pass certain exams and sometimes to have work experience and take continuing education courses.