The concept of risk is often used differently by practitioners and academics. Many practitioners evaluate risk in terms of potential changes relative to today’s values of variables while in academic language risk is evaluated relative to anticipated changes in the value of variables like the exchange rate. Risk is then a measure of likelihood and magnitude of unanticipated changes. Simply, changes in variables may be anticipated or unanticipated and that risk is a measure of unanticipated changes.

Martin Shubik defines “Risk” as a value assessment of the importance of uncertainty to the concerned corporation or other agency. The point stressed here is that risk is only defined in the context of a specific goal structure. It cannot be assessed independently from purpose. Probabilities or the possibility of the occurrence of an event exist independent of purpose. The risk to an individual given that something occurs depends upon that individual’s goals and resources.

Ritchie and Marshall (1993) define the term of risk from a different aspect as the general value judgement made by a person of appropriate status within the organisations as to which of the possible outcomes to a decision situation are acceptable and which are unacceptable. Doherty (1985) asserts that the basis of a risk is the lack of predictability as to the nature and degree of each outcome. But he also confirms that the concept of risk is essentially neutral. It is vital to understand that the fact that a risk is identified does not of itself imply that any outcome will be either desirable or undesirable. According to Ritchie and Marshall (1993) that is a further value judgement made in the light of the goals of the organisation. Thus, at a simplistic level, an investment or speculation may produce profits greater than expected or losses smaller than expected.

The identification of risk must be comprehensive and cover all aspects of the company’s operations, and it can only be achieved if the risk identification is based on a detailed analysis of the key business processes and their interlinkage with other parts of the organisation.

Once the organization must consider the risk management strategies. It will involve assessing the trade-offs between the benefits to be derived from a given reduction in the risk and the costs incurred in achieving this reduction.

The sources of risk in the international environment, also called cross-border risk, are many and varied. They include political, financial, economic events and organisations and also geographic location and strategic importance. Some of the main risks for a multinational company are pointed out in the following table:

Source: Re-produced from Clark; et al. (1993)

Economic risks refer to developments in the national economy that can affect the outcome of an international financial transaction, while financial risk can be identified as the ability of national economy to generate enough foreign exchange to meet payments of interest and principal on its foreign debt. Determination of economic and financial risks are important for the company because both existing and the future businesses are directly influenced from the economic environment. These risks are named country risk.

On the other hand, if an organization has an international business, it will face foreign exchange rate exposure. Pricing mechanism in an international transaction is more complicated than in a purely domestic transaction, because more than one currency is involved. In most cases, companies are borrowed to finance their operations. They can borrow either with different currencies for their businesses in different countries or with the home countries currencies. They have an interest rate risk from their short or long-terms debts, in addition to foreign currency risks.

However, organizations generally prefer the cheaper markets which they can borrow in because they have opportunities to meet their final needs by swap or the other wide range of financial derivatives offered by the banks.

In addition to current discussions, the financial risk should be evaluated in a wider perspective and the skills and techniques applied by treasurers in their traditional treasury risks such as foreign exchange, interest rate risks can be effectively applied to a wide range of business financial risks.

It is also asserted that unexpected financial losses are becoming increasingly more difficult to absorb that’s why the areas which are increasingly put under the spotlight do not relate to traditional treasury financial risks and risks which can be managed by means of effective insurance arrangement.

The identification of risk must be comprehensive and cover all aspects of the company’s moreover group’s operations. It can only be possible if the risk identification is based on a detailed analysis of the key business processes and their interlinkage with other parts of the organisation. Therefore risk should be assessed as a part of chain which is the company’s all business environment and, it will include production, operations, management, control and totally all parts of the organization.