This plan serves as a comprehensive framework that identifies, evaluates, and mitigates the negative impact of different financial risk sources, which may expose the ADUC to potential financial resources losses or fluctuation of financial performance.
Credit risk is the risk that one party to a financial instrument will fail to meet an obligation, causing the other party to incur a financial loss.
Liquidity risk is the risk that the ADUC will encounter difficulties raising funds to meet its liabilities when they become due.
The ADUC is exposed to interest rate risk on its interest-bearing assets and liabilities, namely medium-term loans and borrowings.
While ADUC balances between all stakeholders’ interests, certain special situations faced by some students can justify granting them credit facilities by postponing the payment of due balances or accepting settlements by post-dated cheques, the accounts and cheques receivable risk is identified by the overdue customer balances and the cheques receivable and the potential that such amounts are becoming uncollectible.
Business Risk involves the risk of declining revenues due to a decrease in the number of students or prices, or the uncontrolled increases in expenditures during the normal course of business activities, which will ultimately affect the financial performance and the ability to meet certain requirements to ensure the smooth running of operations.
Financial assets, which potentially subject the ADUC to the concentration of credit risk, consist of the current bank accounts. The ADUC mitigates its credit risk concerning the bank deposits throughout:
To mitigate such risk, the management should regularly ensure the availability of diversified funding sources and continuous monitoring of liquidity sufficiency.
To mitigate the risk of having lower rates on deposits or higher rates on term borrowing compared to the changes in interest rates prevailing in the market, the ADUC’s financial management should:
The accounts receivable risk is mainly involved with amounts due from students and other customers. The ADUC mitigates the accounts receivable risk throughout:
To avoid the potential negative impact on financial performance and the ability to meet certain requirements, and to ensure the smooth running of operations, several approaches and techniques should be adopted by the ADUC’s management to mitigate the different types of business risks as follows: