Final answer:
The risk management process consists of four main steps: Identify, Analyze, Evaluate/Respond, and Monitor. This process includes recognition, evaluation, response planning, and ongoing monitoring of risks. In financial risk management, the focus is on assessing market volatility, credit risk, and liquidity of assets.
Step-by-step explanation:
The four steps in the risk management process are Identify, Analyze, Evaluate (or Respond), and Monitor. This process encompasses a full cycle through which risks are assessed and handled:
- Identify: Initial step where risks are recognized within a project or organization.
- Analyze: Determining the potential impact and likelihood of the identified risks.
- Evaluate/Respond: Deciding on the appropriate responses to the risks and how to mitigate or exploit them accordingly.
- Monitor: Continually tracking the risk environment and the effectiveness of the responses to adjust strategies as necessary.
When managing financial risks, investors consider several factors such as market volatility, credit risks, and the liquidity of assets. This aligns with the broader risk management process where the financial assets are assessed, and due diligence is performed to analyze the risk involved and respond appropriately to secure investments.