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Financial Companies’ Risks and Innovations

Financial activities are often associated with many risks that must be resolved for companies’ successful operations. Besides, at the moment, many large and start-up companies are trying to follow the emerging innovations. This essay aims to explore the reasons for this behavior, the propensity to innovate, and the maintenance of risk among financial companies.

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In any industry and area, business activity is associated with many risks that need to be managed. It is impossible to get rid of them, only to reduce or turn them in one way or another. Therefore, many companies resort to the so-called asset-liability management. This type of administration attempts to mitigate risk to meet the company’s responsibilities (Ross, 2020). To achieve this goal, it is necessary to allocate assets wisely, and skillfully manage existing liabilities. With adequate use of this method, it is possible to complete a safer business course and generate additional income by increasing assets.

Besides, to resolve emerging problems, business companies can also resort to financial intermediaries’ help, allowing them to manage the existing risks. By serving as a middleman between two entities, such as banks, an intermediary can help create efficient markets and reduce the cost of doing business through large-scale pooling of risks (Chen, 2020). Although the stakes, in this case, are not eliminated or significantly reduced, their presence does not pose such a danger to companies due to their merger and skillful management of a third party. Investors get the opportunity to pool their funds to make larger investments with less risk.

Finally, another way to deal with the risks and challenges involved is through innovation. Research has shown that many factors drive companies to innovate, but among all surveyed businesses, one aspect was highlighted as a common factor: the need to survive (Lima & da Silva Müller, 2017). The use of new methods and technologies allows for taking a better position in the market due to these innovations’ benefits. Although this approach is also associated with risks, its use significantly increases the likelihood of a company’s success and the potential income earned.

Thus, we can conclude that the main reason for maintaining risks in the industry and using innovations is the prospect of obtaining more significant benefits. With the use of various methods and approaches, the stakes also increase. However, there are enough ways to eliminate these risks in the economy, reduce them, and redistribute them to ensure the economy’s security.

References

Chen, J. (2020). Financial intermediary. Investopedia. Web.

Lima, V. A., & da Silva Müller, C. A. (2017). Why do small businesses innovate? Relevant factors of innovation in businesses participating in the Local Innovation Agents program in Rondônia (Amazon, Brazil). RAI Revista de Administração e Inovação, 14(4), 290-300. Web.

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Ross, M. L. (2020). Examples of asset/liability management. Investopedia. Web.

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StudyCorgi. (2022, September 3). Financial Companies’ Risks and Innovations. Retrieved from https://studycorgi.com/financial-companies-risks-and-innovations/

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StudyCorgi. 2022. "Financial Companies’ Risks and Innovations." September 3, 2022. https://studycorgi.com/financial-companies-risks-and-innovations/.

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StudyCorgi. (2022) 'Financial Companies’ Risks and Innovations'. 3 September.

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