FINANCIAL RISK MANAGEMENT - 10mins Seminar Notes

  FINANCIAL RISK MANAGEMENT - 10mins Seminar Notes  

It is the practice of economic value in a firm by using financial instruments to manage exposure to risk.
Operational risk, credit risk and market risk, foreign exchange risk, liquidity risk, inflation risk, legal risk, reputational risk etc.
Financial risk management requires identifying its sources, measuring it, and plans to address them.

HOW DOES FINANCIAL RISK ARISE: 

There are three main sources of financial risk:

1. Financial risks arising from an organization’s exposure to changes in market prices, such as interest rates, exchange rates, and commodity prices.
2. Financial risks arising from the actions of, and transaction with, other organizations such as vendors, customers, and counterparties in derivatives transactions.
3. Financial risks resulting from internal actions or failures of the organization, particularly people, processes, and systems.
   

EXAMPLES                                                                                                                              

1. Currency Risk
2. Interest rate risk
3. Inflation risk
4. Unexpected changes

OBJECTIVES OF RISK MANAGEMENT  

Support strategic and business planning enhances communication between directors and departments
•    Support effective use of resources
•    Promote continual improvement
•    Helps focus internal audit programs
•    Fewer shocks and unwelcome surprises
•    Reassures stakeholders
•    Quick grasps of new opportunities

TECHNIQUES
•    Identify the risk
•    Measure the financial risk
•    Learn about investment
•    Turn to insurance policy
•    Build an emergency fund
•    Review financial ratings of bank
•    Diversify income sources

PROCESS
•    Determine the corporation’s objectives
•    Identify the risk exposures
•    Quantify the exposures
•    Assess the impact
•    Examine alternative risk management tools
•    Select appropriate risk management approach
•    Implement and monitor program

INSTITUTIONS
•    American risk and insurance association
•    Association of insurance and risk managers in industry and commerce
•    Global association of risk professionals
•    Institute of risk management
•    Professional risk manager’s international association
•    Risk and insurance management society 

Presented By 

Rakhi G
Banking Student
Magme School of Banking