Financial Innovation & Risk Management of Goldman Sachs Essay

Financial Innovation & Risk Management of Goldman Sachs - Essay ExampleThe paper tells that over the recent years, commercial banks in the banking industry obtain recorded dramatic losses because of guesss it sides due to global crisis. This is because, in the fiscal perspective, risk is assessed as the tendency whereby the actual return does non match with the expected return. As a commercial bank, Goldman Sachs faces market risk, financial risk and operation risk that arise from either external or inside activities. With banks facing a crisis as a result, of risks that arise from credit exposure and interest rate position among other risks they have resolved to upgrade the risk care strategies and theories they use. Goldman Sachs is one of the banks using risk management strategies that either eliminates or mitigates some risks. In other instances, Goldman Sachs management decides to shift the risks to other parties. The risk management strategies comprise of liquidity risk management, operations risk management, credit risk management and market risk management that has over the years, seen the bank remain persistent during both the financial and economic crisis. More significantly, banks carry out risky business, as it provides financial services to its clients. In the banking industry, Goldman Sachs is well known as the star securities and global investment-banking firm. It has three main business lines that it operates comprising of investment banking, asset management and securities services and trading and principal investments. Goldman Sachs is an international corporation that provides services to a straightforward and diversified client source that is widely distributed worldwide. With banking institutions in over twenty-three countries, it has diversified its operations outside the United States and grown globally (Goldman Sachs, 2012). Its wide base of clients includes other financial institutions, governments, corporations, and high net worth individuals. As a result, the management of Goldman Sachs focuses on being the leading member in worldwide financial markets besides being a leading advisor of choice to its wider clients base. Goldman Sachs just like other financial institutions faces business and operational risks that originates from its internal activities apart from financial risk that arise from outside activities (Goldman Sachs, 2012). As a result, liquidity, market and credit risks fall under liquidity risk because it relates to the outside clients of the bank. On the other hand, legal, people, system, honor investment and external risks relate to day-to-day operational risks of the bank. At Goldman Sachs, the management and strategic risks are more likely associated with business risks within the banking institution. More than often, institutions face a financial crisis, and economic crisis that have affected Goldman Sachs bank operations just like any other banks in the industry. Nonetheless, the i mpact of the crisis depends on the train of risk management an organization has been implemented (Goldman Sachs, 2012). With the high level of competition that exists in the banking industry today, besides the existence of an open economic system that is followed by sensitive market players and other heavy external influences it is more challenging for institutions to carry out efficient liquidity management plans. Goldman Sachs, as one of the strong banking institution with branches in different countries faces competition from non-banking financial institutions that has recently seen banks declining reliance on the levels of deposits because of the Brobdingnagian competition. In addition, the competition in the banking industry has become immense thus, affecting the global position of Goldman Sachs in the financial market. With pressure mounting up for accountability to the shareholders based on risk management, Goldman Sachs just as, many banks have resorted to ensure that it mitigates risks while efficiently managing its liquidity levels