Answer to Question #169818 in Finance for Joseph

Question

How are risks faced by financial institutions mitigated or managed?

Answer 1

The risks faced by financial institutions can be mitigated by ensuring that the credit exposure is all the time made and kept within specific standard and acceptable parameters. 

Many parameters are used, but one of the most effective ways of mitigating risks is by risk rating model, a unique system that determines how much the banks may stand to lose or gain on their credit portfolios. The risk rating model is the best basis model that ensures that the credit score well informs the decision to lend out the clients' money and the lending history and credit score of the prospective borrowers.