...Introduction Financial risk takes place when an individual or company is exposed through numerous financial transactions. These transactions may include sales, purchasing, different types of investments, loans, volatile markets due to political situations and more. Financial prices may change as a result of changes in interest rates, inflation, the exchange rate, and many more economic reasons such influences of the European markets as well as the United States. These occurrences can result in increased cost and reduced revenues. It is clear that these aspects make it difficult to plan the operations of an organization. Another aspect that greatly influences the financial risk of organisations is Porter’s Five Forces analysis. Figure 1 below shows how these forces interact. Figure 1 – Porter’s Five Forces analysis model If these forces are intense such as in the airline industry, the risk is much greater. If these forces are benign, such as in the soft drink industry, the risk might not be very great. Systematic risk Systematic risk is also known as market risk or un-diversifiable risk. It is the uncertainty inherent to the entire market or segment. This type of risk consists of fluctuations in a stock’s price. Volatility is a measure of risk because it refers to the behaviour or temperament of an investment rather than the reason for this behaviour. Sources of systematic risk normally affect the entire market and cannot be avoided through diversification. Examples...
Words: 1797 - Pages: 8
...NBER WORKING PAPER SERIES FINANCIAL RISK MEASUREMENT FOR FINANCIAL RISK MANAGEMENT Torben G. Andersen Tim Bollerslev Peter F. Christoffersen Francis X. Diebold Working Paper 18084 http://www.nber.org/papers/w18084 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 May 2012 Forthcoming in Handbook of the Economics of Finance, Volume 2, North Holland, an imprint of Elsevier. For helpful comments we thank Hal Cole and Dongho Song. For research support, Andersen, Bollerslev and Diebold thank the National Science Foundation (U.S.), and Christoffersen thanks the Social Sciences and Humanities Research Council (Canada). We appreciate support from CREATES funded by the Danish National Science Foundation. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2012 by Torben G. Andersen, Tim Bollerslev, Peter F. Christoffersen, and Francis X. Diebold. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. Financial Risk Measurement for Financial Risk Management Torben G. Andersen, Tim Bollerslev, Peter F. Christoffersen, and...
Words: 41700 - Pages: 167
...ESSENTIALS of Financial Risk Management Karen A. Horcher John Wiley & Sons, Inc. ESSENTIALS of Financial Risk Management Essentials Series The Essentials Series was created for busy business advisory and corporate professionals. The books in this series were designed so that these busy professionals can quickly acquire knowledge and skills in core business areas. Each book provides need-to-have fundamentals for those professionals who must: Get up to speed quickly, because they have been promoted to a new position or have broadened their responsibility scope • • Manage a new functional area • Brush up on new developments in their area of responsibility • Add more value to their company or clients Other books in this series include: Essentials of Accounts Payable, Mary S. Schaeffer Essentials of Balanced Scorecard, Mohan Nair Essentials of Capacity Management, Reginald Tomas Yu-Lee Essentials of Capital Budgeting, James Sagner Essentials of Cash Flow, H. A. Schaeffer, Jr. Essentials of Corporate Performance Measurement, George T. Friedlob, Lydia L. F. Schleifer, and Franklin J. Plewa, Jr. Essentials of Cost Management, Joe and Catherine Stenzel Essentials of Credit, Collections, and Accounts Receivable, Mary S. Schaeffer Essentials of CRM: A Guide to Customer Relationship Management, Bryan Bergeron Essentials of Financial Analysis, George T. Friedlob and Lydia L. F. Schleifer Essentials of Financial Risk Management, Karen A. Horcher ...
Words: 61657 - Pages: 247
...JONATHAN MUROMBA 2012178104 FINANCIAL RISK MANAGEMENT Management of Financial Institutions and The Banking Crisis Risk is uncertainty. The more risk one takes, the more he or she stands to lose or gain. One cannot expect high returns without taking substantial risks. The outcomes are thrown open to uncertainty. In general, when we talk about risk, we focus on financial risk. In financial terms, it is the risk that a company or individual could lose some or all of the original investment, possibly resulting in inadequate cash flow to meet financial obligations. All wise investments follow risk consideration. To be successful, every investor must be able to identify and understand the types of risk they face across their entire portfolio. Therefore, risk can present great opportunities for those who understand and know how to manage it. Advances in risk management theory have had a tremendous impact on global economic development. Now there are powerful ways to analyze risks and make stable decisions about the future. We can identify and measure different types of risk, and decide which ones to take and which ones to avoid and it is of paramount importance to take note that if if not properly managed, risks can lead to disastrous outcomes or even to the demise of institutions In the United Kingdom (UK), the repercussions of the banking crisis affecting the financial sector became an issue of a wider economy. In January 2009, it was confirmed that the UK officially entered...
Words: 1763 - Pages: 8
...Assignment Course Title : Financial Management Course Code : BUS 302 Section : 03 Submitted To :- Shafayat Hossain Chowdhury Lecturer School Of Business University of Liberal Arts Bangladesh Submitted By :- Asma Ull Husna | 143011145 | Bytul Mahmud | 142011154 | Nasima Islam | 142011201 | Afsar Uddin Mollah | 142011186 | Galib Md. Fazal Khan | 112011142 | Date: 26th June, 2016 Aramit Cement (ARAMITCEM ) Income Statement 2014 149,462,391 122,198,920 Gross Profit EBIT DOL = = = 1.22 122,198,920 122,198,920 - 105,664,296 EBIT EBIT - I DFL = = = 7.39 DTL = DOL * DFL = 1.22 * 7.39 = 9.01 Confidence Cement Limited (CONFIDCEM) Income Statement 2014 606,412,471 443,602,779 Gross Profit EBIT DOL = = = 1.37 443,602,779 443,602,779 - 65,010,833 EBIT EBIT - I DFL = = = 1.17 DTL = DOL * DFL = 1.37 * 1.17 = 1.60 Lafarge Surma Cement Limited Income Statement 2014 4,466,871,000 3,778,223,000 Gross Profit EBIT DOL = = = 1.18 3,778,223,000 3,778,223,000 - 0 EBIT EBIT - I DFL = = ...
Words: 397 - Pages: 2
...Brief Introduction of Financial Risk Management Financial risk management is an interdiscipline with various researching subfields including the studies of mathematical methods to maximum the profits, quantitative analysis of financial databases and investment decisions. In other words, it is aimed to bridge the gap between mathematical theories and practical financial analysing tools (Nawrocki 1999). It could also be defined as“Living with the possibility that future events may cause adverse effects” (Kloman 1999). Risk and profit are always an integral. The variety of risks including portfolio risk, credit risk and liquidity risk became a financial conundrum which equalled to a group of destructive nuclear bombs hidden in the monetary market. Consequently, the risk management represents the core competence in insurance and banking industries. With the innovation of IT technology, more advanced computer software has been introduced in financial area which results that the risk management has made impressive strides in last decade. As the academic field mature constantly, the abstract mathematical and statistic concepts reifies to accessible programs which could predict the trends of investment returns, for example, the expected earnings at the end of next week after buying certain amount of stock at next Monday (Chapman 1996, iv). The origin of risk management could date back to the game theories introduced by two French mathematicians...
Words: 1007 - Pages: 5
...Relationship between corporate financial analysis and financial risk Any business will face some financial risk, its objective, not the people's will. However, if the business through good financial analysis, financial risk can be effectively prevented and controlled. In this regard, companies should focus on strengthening the financial analysis of the financial risks of business operations in a variety of financial risks for timely prediction and prevention, so as to improve economic efficiency of enterprises. Based on this, we have launched some discussion, want to contribute to a certain extent, corporate financial risk prevention. First, the financial analysis of the current Chinese enterprises widely used (A) comparative analysis Comparative analysis, as the name suggests, is to more than one set, or a set of comparative data or index, pairwise comparison, analysis, study, to determine the actual operating current business situation of enterprises and financial risks. Normally enterprises in comparison, and more is the issue and planned, the current number and the number of installments, business data and industry data, the actual number of the department and other departments and other indicators of the actual number of comparisons and analysis. (B) the structure analysis Structure analysis method refers to a particular financial indicators seen a whole, with its data as a part of the molecule, divided by the overall financial indicators to calculate the ratio...
Words: 1537 - Pages: 7
...Scale/Research Planning 7 8. Timetable 9 9. Problems of the Fact 10 10. Conclusion 10 11. Reference 11 12. Appendix 12 Abstract Commercial Banks are the most dominant financial institutions in the domain of commerce and industry. The efficiency of commercial banks is dependent on their ability to mobilize fund profitability, which can enhance their corporate value. There can be few, if any, parts of the economy in which risk management is more important than the financial sector. Financial institutions account for a sizeable number of the world's leading companies and have a critical role to play in the economics of every country and thus in world economic order as a whole. The research will be focusing on the case study method by interviewing the concerned person that will provide detailed analysis of such Bangladeshi commercial banks of the country as their business operation is being centered on taking risks in conditions of uncertainty. The process with such focus on how outcomes relate to effective risk management will be deemed important. The results should achieve in answering such issues and problems presented based on research findings and information researches to support whatever data is gathered respectively. In this research we shall try to focus on how risk management i.e. firms’ financial valuation to its customer and management to added corporate value, may...
Words: 3585 - Pages: 15
...Midterm Practice Problems From Review Session: 11/9/2012 Ch 8 From Chapter 8, I went over problems 8.7, 8.9 (Answers in back of the book) and problems 8.16, 8.17, which you have answers from Homework solutions. Make sure you know the duration and convexity equations, and how the bond price changes due to a change in yield/ ___________________________________________________________________________________ Ch 9 From Chapter 9, I went over problems 9.6, 9.9, 9.10 (Answers in the back of the book) and 9.13. VaR problems in my mind break down into three parts: Normally distributed, the “stair cummulative dist function”, and the autoregressive model. Be familiar with how to solve all three. 9.13. Suppose that daily changes for a portfolio have first-order correlation with correlation parameter 0.12. The 10-day VaR, calculated by multiplying the one-day VaR by , is $2 million. What is a better estimate of the VaR that takes account of autocorrelation? The correct multiplier for the variance is 10 + 2 × 9 × 0.12 + 2 × 8 × 0.122 + 2 × 7 × 0.123 + . . . + 2 × 0.129 = 10.417 The estimate of VaR should be increased to = 2.229 _________________________________________________________________________________ Ch 10 From Chapter 10, I went over 10.11, 10.12 (Answers in Book). While many of the formulas here look complicated, when it comes down to it, many parts of these questions in the book are just “plug-and-chug” questions. Here is 10.21 in case you tried it out for...
Words: 573 - Pages: 3
...manufacturer of fiber cement products and systems for internal and external building construction applications in the United States, Australia, New Zealand and the Philippines. Through significant research and development expenditure, James Hardie developed key product process technologies that provide James Hardie a competitive advantage. Financial crisis had a significant impact on the construction industry. USA is the largest market of James Hardie, its demand for new building construction and renovations near historic lows. However, operation in Asia-Pacific region reflects a strong customer market and significant expenditure on R&D provides it with competitive advantages. These are all the strengths James Hardie has when facing extreme shifts. Foreign exchange risk is considered as one major financial risk for the company. The volatility of AUS/USD exchange rate significantly affected corporation costs that incurred in AUD but reported in USD. It is suggested to a use forward rate agreement to hedge over 71% of Asbestos-related asset and liabilities that are not naturally hedged. Commodity Price risk is another significant financial risk for the group. Pulp demonstrated more price sensitive than other input and its price had been extremely volatile the past few years. Recent high commodity price resulted in significant increase in cost of sales and decrease in profit margin. A pulp call option is recommended to ensure company’s profit margin stay above 20%. Company...
Words: 1689 - Pages: 7
...same way. Nevertheless, a good relationship with their lead regulator is vital to its success. Therefore, most of the banks’ design of internal risk management systems will reflect in terms of the core elements, the risk evaluation process used by the regulator. Q - What does the «three lines of defence» model involve? * The Business - It’s accountable for the ownership and day-to-day management and control of operational risk. Responsible for implementing processes in compliance with group policies. * Operational Risk – Implementation and maintenance of the operational risk framework, tools and methodologies. * Group Internal Audit – Providing independent assurance on the design, adequacy and defectiveness of group’s system of internal controls. Q - How are risk exposures measured within RBS? What are the main limitations of the measurement techniques used by the bank? It’s usually the Group of Directors who set the overall risks appetite and philosophy and they all participate in discussing the strategy, performance and the financial risk management of the organization. This kind of system brings some disadvantages as the CEOs may dominate decision-making. There might be a high degree of cynicism among the investors about the statements of risk management that appear in the annual reports. Q - Which are the key risk...
Words: 306 - Pages: 2
...J & J Financial Services Risk Identification, Ranking and Monitoring The J & J Financial Services is a project in the making. It is designed to provide short-term loan to qualified customers within the rural community of Grand Gedeh, in the Eastern Region of Liberia, West Africa. The proprietor of this set up contacted me to assist him in developing a risk analysis for his project. Giving my training and knowledge of what I have studied and know from my PM course, I advised him that the way to begin is to start a brainstorming session in order to explore and identify the potential risk for this project. The brainstorming process as indicated by (Cooper, 2005) allows for those involve in the risk identification process to exploit their creative capacity in the preliminary identification of a wide range of risks. Hence, in following this approach, an arranged meeting was scheduled for the J&J Financial Services’ proprietor, the Prospects Consultant Group, (PCG) Executive Manager and I to meet at the Offices of the (PCG) offices to begin the Process. The below outcome is what emerged as an initial risk assessment for the J&J Financial Services. Brainstorming Session The PCG offices provided the space and resources that were used to begin the process: a manual whiteboard, board markers, note pads, and other essential logistics were made available. Identifying and Defining the Elements 1. Inadequate transportation 2. Fire hazard 3. Competitor’s threat ...
Words: 1214 - Pages: 5
...with different outcomes, risk and how to manage it has become a critical issue. The recent global financial crisis served as a reminder that risk management and how the same is practiced is fundamental if performance objectives are to be consistentlyachieved. It has emerged that as business owners and managers strive to improve and sustain performance they are now also required to consider what risk management practices their organizations have adopted to avoid falling short of their strategic objectives. This is even more so in the financial services sector which was the most affected during the recent financial crisis. The objectives of this study were to analyze the risk management practices undertaken by Commercial Banks in Kenya and to determine and assess the effect of these risk management practices on their financial performance. The risks facing financial institutions are mainly classified into; strategic, operational, credit and market risks. In managing these risks, the risk management approach adopted by the owners and/or management was influenced by the organizational culture and support, whether or not risk management is integrated in the setting of organizational objectives, whether there is a documented risk management policy or framework, how the risk identification process is conducted, the risk analysis process, evaluation and treatment of risk; risk monitoring and review; and last but not least ensuring that there is effective risk management. In order to carry...
Words: 541 - Pages: 3
...LONDON SCHOOL OF BUSINESS AND FINANCE CREDIT RISK MANAGEMENT OF NON-BANKING FINANCIAL INSTITTUTION IN GHANA (A CASE STUDY OF TF FINANCIAL SERVICES) BY STEPHEN KWADWO NTIRI A Thesis Submitted to the London School of Business and Finance in Partial Fulfilment of the Requirement for the MBA Degree in Financial Services MARCH 2010 DECLARATION I Stephen Kwadwo Ntiri hereby declare that except for references to other people’s work, which have duly been acknowledged, the work presented here was carried out by me, MBA student of Financial Servies at the London School of Business and Finance (LSBF), under the supervision of Randolph Metz-Johnson. I also declare that this work has never been submitted partially or wholly to any other institution for the award of a certificate. …………………………………………… ……………... Stephen Kwadwo Ntiri Date (Student) ………………………………………… …………… Randolph Metz-Johnson Date (Supervisor) Dedication This research project is dedicated to Almighty God for His abundant blessings and protection given me throughout this study, and also to my family for the support I received from them. Acknowledgement I am most grateful to Almighty God who through His infinite mercy and love guided me throughout the duration of the programme. I wish to acknowledge the help and encouragement I got from the entire staff of TF Financial Services, especially Mr. Benjamin Turkson, which has enabled me to complete this work. I also want to thank my wife, Esther Yamoaba...
Words: 12787 - Pages: 52
...The Implications of Risk Management Information Systems for the Organization of Financial Firms Michael S. Gibson* Federal Reserve Board Abstract Financial dealer firms have invested heavily in recent years to develop information systems for risk measurement. I take it as given that technological progress is likely to continue at a rapid pace, making it less expensive for financial firms to assemble risk information. I look beyond questions of risk measurement methodology to investigate the implications of risk management information systems. By examining several theoretical models of the firm in the presence of asymmetric information, I explore how a financial firm’s capital budgeting, incentive compensation, capital structure, and risk management activities are likely to change as it becomes less costly to assemble risk information. I also explore the likely effects of the falling cost of assembling risk information on a financial firm’s organizational structure. Two common themes emerge: centralization within the firm and increased disclosure of risk information outside the firm are both likely to increase. 1 Introduction Financial dealer firms have invested heavily in recent years to develop information systems for risk measurement and management.1 These systems gather data on a firm’s risk positions and compute statistical measurements, such as Value-atRisk, to assess the magnitude of the risks faced by the firm. Increasingly, the uses of these...
Words: 4467 - Pages: 18
