Which of the following describes an effective method to manage financial risks?

Monitoring market changes and adjusting strategies is a fundamental approach to managing financial risks because it allows for proactive responses to fluctuations in the financial environment. This method involves continuously observing economic indicators, market trends, and potential threats which enables an organization to anticipate and mitigate risks before they escalate.

By adjusting strategies in response to market changes, a finance officer can effectively safeguard the organization’s assets, optimize investment strategies, and ensure that financial decisions align with current and projected market conditions. This proactive stance is essential in maintaining stability and achieving long-term financial goals.

Other methods, such as investing in high-risk ventures or avoiding all types of investments, are not prudent strategies for financial risk management. High-risk investments may lead to significant losses, while avoiding investments entirely can prevent growth and opportunities for profit. Similarly, reducing spending on necessary operations can undermine the organization’s ability to function effectively, leading to operational risks that may have severe financial repercussions.