Week 1 Flashcards
(12 cards)
Risks for financial companies
-liquidity risk
-credit risk
-market risk ( foreign exchange, interest, commodity, equity)
Risks for non financial companies
-Reputation
-Failure to change
-Product liability
Liquidity risk
Insufficient cash is available to meet obligations (not enough cash)
Due to liquidity trading and liquidity funding risk
Credit risk
Risk that obligor doesn’t honour a payment obligation
(Borrower not paying back what u owe)
Market risk
Risk of change in value as a result of a change in market price
(Possibility of losing money in investment)
Long position (Ownership)
-Purchase asset so prices will rise so you’ll see increased profit.
-Fall in market price
Short position (No ownership)
-Selling asset, anticipating price will fall, decreased profit, so you’ll see can but it later
-Rise in market price
Board of Directors- Corporate Management- Risk Management Professionals
Board of directors- provide structured process to identify and analyse major risks forced by firms
Corporate management- Implement risk policies set by BoD within their areas of responsibility
Risk managemt professionals- Advice on risk and risk mitigation, oversee risk management process
Risk appetite
Amount and type of risks that an organisation is willing to pursue or retain
Risk management policy
Statement of the overall intentions and direction of the organisation relate to risk management
Risk management structure
Board- approve risk policy
-delegate responsibility
Risk Management Committee- board responsibility may be delegated to a RMC
Corporate Treasurer- responsible for day to day management of risk
5 stages of managing risk
Risk identification- identify and classify risk
Risk assessment- assess size of loss and probability of loss occurring
Risk evaluation- quantify risk in more depth
Risk response- Implement plan to manage risks effectively
Risk reporting- report to management what risk actions were taken place
