A risk assesment matrix is an effective tool to quantify the magnitude of risk, especially in the finance sector, by considering the total category of risk or likelihood against the total category of potential consequence. This is an easy method to increase visibility for all risks and help management decision-making better.

The first step is to categorize all financial products based on the classification of risk. After this, identify which risks can be effectively evaluated within a matrix framework, which can be ignored. After this step, prepare a risk assessment matrix by evaluating all the risks included in your total risk term and the key inputs like price, time, level of exposure, management strategy, industry, and many other inputs that can affect risk profile.

Evaluate all the risks that are not included in your risk assessment matrix by considering their impact on all the assets’ market value. This will help you evaluate the amount of loss you are willing to accept for the total assets. Usually, the most significant risks are those not included in the default or carry trade options. You can further evaluate these risks using the default and carry options as the market values directly influence their values.