What is the primary objective of financial risk management?

The primary objective of financial risk management is to identify, assess, and prioritize risks. This process involves systematically recognizing the potential sources of risks that can impact an organization's financial health, analyzing the potential severity of these risks, and determining the best strategies to mitigate or manage them.

By focusing on these key activities, financial risk management aims to create a balanced approach that allows organizations to undertake necessary risks for pursuing opportunities while ensuring that potential adverse impacts are minimized. This not only helps in safeguarding the assets and income of the organization but also supports strategic decision-making and enhances overall financial stability.

Maximizing financial gains regardless of risks fails to recognize the inherent uncertainties in investment and operational decisions. Eliminating all financial risks is virtually impossible, as some level of risk is inherent in any financial transaction. Similarly, investing in high-risk assets does not align with the broader objective of managing risks effectively, as it often means exposing the organization to a greater chance of loss without proper assessment and control. Thus, the focus must remain on understanding and managing risk rather than pursuing it recklessly or aiming for its complete eradication.