How to deal with Fiscal risks

Fiscal risk is the possible financial loss that a company or individual incurs as a result of their own actions, or those of others. Fiscal risks can come from many sources including market conditions (such as interest rates and foreign exchange fluctuations), management decisions (including asset allocation and sales volume), industry dynamics, product defects, natural disasters, terrorist attacks etc.

There are three broad types of fiscal risks: Operational Risk Financial Institution Risk Business Environment Risk The most common way to mitigate these risks is through diversification within an investment portfolio across different areas such as credit quality ratings, country exposures etc.. 

Fiscal risks are the potential consequences that could arise from an act or omission of an organisation's management. They can be broadly categorized into two types- fiscal risks that arises from changes in underlying fiscal conditions, and fiscal risks that arises from changes in market prices and demand for the organisation's assets and liabilities. Maloney and Zhou (2013) identifies five steps to mitigate fiscal risks- an organisation has to be aware of the risks, understand the risk, identify the mitigation measures, implement the mitigation measures, and manage the mitigation measures. A good way to identify fiscal risks is to conduct a financial analysis. This will help in understanding the company's financial position and liabilities.

The company's assets and liabilities should be analyzed quantitatively and qualitatively. Quantitative analysis will look at the financial ratios of the company, while qualitative analysis will look at the history of the company and the factors that could impact its future performance. The financial analysis should be updated on a regular basis so that the company is always aware of its fiscal risks. Once the risks have been identified, it is important to ascertain the measures that need to be implemented in order to mitigate the risks. This will include taking appropriate steps to reduce debt, raising capital, and improvement in financial ratios. Some measures may require co-ordination with other departments in the organisation, while others may just require the execution of a one-time task. 

The key is to identify the measures that will work best for the specific risks faced by the company and to put in place a plan to execute them. Finally, it is important to manage the mitigation measures so that they remain effective over time. This includes monitoring the effectiveness of the measures and bringing in changes as and when required. It is also important to revise the mitigation measures as the risks posed by the organisation change. 

Fiscal risks need to be identified and assessed so that appropriate measures can be put in place to mitigate them. This should be done on a regular basis so that the company is always aware of its risks and can make the best decisions for its future.