risk mgmt.pptx
- 1. Dr. Shraddha Shukla Ph.D, SET, M.Phil, M.Com,P.G.DFM IQAC,B.B.I,BAF & M.Com Co-ordinator Shailendra Degree College
- 2. Introduction, Risk Measurement and Control Introduction, Risk Measurement and Control Definition, Risk Process, Risk Organization, Key Risks –Interest, Market, Credit, Currency, Liquidity, Legal, Operational Risk Management V/s Risk Measurement – Managing Risk, Diversification, Investment Strategies and Introduction to Quantitative Risk Measurement and its Limitations Principals of Risk - Alpha, Beta, R squared, Standard Deviation, Risk Exposure Analysis, Risk Immunization, Risk and Summary Measures – Simulation Method, Duration Analysis, Linear and other Statistical Techniques for Internal Control
- 3. 2 Risk Avoidance and ERM • a) Risk Hedging Instruments and Mechanism: Forwards, Futures, Options, Swaps and Arbitrage Techniques, Risk Return Trade off, Markowitz Risk Return Model, Arbitrage Theory, System Audit Significance in Risk Mitigation • b) Enterprise Risk Management: Risk Management V/s Enterprise Risk Management, Integrated Enterprise Risk Management, ERM Framework, ERM Process, ERM Matrix, SWOT Analysis, Sample Risk Register
- 4. 3 Risk Governance and Assurance • a)Risk Governance: Importance and Scope of Risk Governance, Risk and Three Lines of Defense, Risk Management and Corporate Governance • b) Risk Assurance: Purpose and Sources of Risk Assurance, Nature of Risk Assurance, Reports and Challenges of Risk • c) Risk and Stakeholders Expectations: Identifying the Range of Stakeholders and Responding to Stakeholders Expectations
- 5. 4.Risk Management in Insurance • a) Insurance Industry: Global Perspective, Regulatory Framework in India, IRDA - Reforms, Powers, Functions and Duties. Role and Importance of Actuary • b) Players of Insurance Business: Life and Non- Life Insurance, Reinsurance, Bancassurance, Alternative Risk Trance, Insurance Securitization, Pricing of Insurance products, Expected Claim Costs, Risk Classification • c) Claim Management: General Guidelines, Life Insurance, Maturity, Death, Fire, Marine, Motor Insurance and Calculation of Discounted Expected Claim Cost and Fair Premium
- 6. Question Paper Pattern (Practical Courses) • Q-1 Objective Questions 15 Marks • A. Sub Questions to be asked 10 and to be answered any 08 8 Marks • B. Sub Questions to be asked 10 and to be answered any 07 • (*Multiple choice / True or False / Match the columns/Fill in the blanks) 7 Marks • Q-2 - Full Length Practical Question 15 Marks OR • Q.2.Full Length Practical Question 15 Marks • Q-3 - Full Length Practical Question 15 Marks OR • Q.3.Full Length Practical Question 15 Marks • Q-4 - Full Length Practical Question 15 Marks OR • Q.4.Full Length Practical Question 15 Marks • Q-5 A) Practical questions 08 Marks • B) Practical questions 07 Marks OR • Q.5.Short Notes To be asked 05 To be answered 03 15 Marks
- 7. Module I • Risk process-Identification, Analysis, Evaluation, Treatment, Monitoring • Types of risk-Market, Liquidity, Exchange rate, operational, credit, systematic, unsystematic, political, commercial, inflation • Exchange Rate risk- a)Transaction exposure-conversion of foreign exchange at the date of payment b)Translation Exposure-Converting values of assets & liabilities denominated in a foreign currency into the domestic currency c)Operation exposure-future cash flows of a firm will get affected due to fluctuation in value of foreign currency
- 8. • Risk reduction measures by stock exchanges: a)Capital adequacy requirement b)Trading and exposure limits c)Margin requirement Political Risk, Technology risk, Inflation risk
- 9. Diversification • Meaning-Refers to constructing portfolio comprising of various group of assets • Advantages-Reduction of risk, Enhancement of returns • Limitations-Systematic risk remains unchanged, Increase complexity, Increases the cost of managing the portfolio • Factors to be considered while diversifying- Cost., Returns, Complexity, Investment objectives
- 10. • Investment Strategies-Increasing number of sectors and stocks, Use of fixed income securities, Inclusion of derivatives in portfolio, Alternative investment strategies • Quantitative Risk Management-It is analysis of the highest priority risks during which a numerical or quantitative rating is assigned in order to develop a probabilistic analysis. • Methods of Quantitative risk measurement- Tool-1)Sensitivity analysis-refers to change in output with change in one or more input analysis. Tool-2)Expected monetary value(EMV) analysis-it is calculated by multiplying the likelihood by the cost impact to obtain an expected value for each risk Tool-3)Decision tree analysis-flow diagram Tool-4)Tornado diagrams-it is a special type of Bar chart, where the data catergories are listed vertically instead of the standard horizontal presentation Tool-5)Modeling and simulation: It is Monte Carlo analysis which is normally calculated by computer by analyzing many scenarios for the project schedule and calculating impact of particular risk events. Tool-6)Expert judgement
- 11. ALM in Banks • 1) Managing interest rate risk • 2)Effective ALM policy • 3)Linking ALM with future risk management policy Basel Norms in Banking Industry a)Minimum capital requirements b)Supervisory review c)Market discipline
- 12. Risk and summary measures • 1)Simulation method-computerised mathematical technique that allows people to account for risk in quantitative analysis and decision making. • 2)Duration analysis-measure of time • 3)Macaulay Duration- It is weighted average term to maturity of the cash flows from a bond. • 4)Modified duration: it is calculated as measurable change in the value of a security in response to a change in interest rates. • 5)Rupee Duration: It is measure of percentage change in price, for a percentage change in yield.
- 13. Module II • Derivatives-Forwards, Futures, Options, Swaps • Arbitrage techniques-Simultaneous buying & Selling of securities, currency or commodities in different markets • Markowitz risk and return model-It is theory an how risk- averse investors can construct portfolios to optimize or maximize expected return based on a given level of market
- 14. System audit • Meaning-Assessing the effectiveness of a company’s internal controls, importance of system audit in risk mitigation • Distinguish between risk management and enterprise risk management • ERM-meaning, framework, process, matrix, components • Identify Risk through SWOT analysis • Risk Register
- 15. Module III • Risk Governance-rules convention processes and mechanism by which decisions about risks are taken and implemented • Corporate governance-it is process of supervision and control intended to ensure that the company’s management acts in accordance with interests of shareholders. • Benefits of corporate governance
- 16. Three line Defence model • It is a active way to enhance communication on risk management and control by clarifying essential roles and duties. • First line of defence-functions that own and manage risk-operational managers own and manage risk • Second line of defence-functions that oversee or specialize in risk management compliance. It is function to monitor, to control • Third line of defence-Functions that provide independent assurance, above all internal audit.
- 17. • Risk assurance-It is professional service provided by Chartered or Certified Public Accountants or Chartered Certified Accountant. • Sources of risk assurance-First, second, third line • Risk assurance report-written report, conclusions(Positive or negative conclusion) • Reports and challenges of risk
- 18. Risk and stakeholders expectation • Stakeholders-individual, group, or organisation who may be affected by or perceive itself to be affected by a decision activity, or output of a project • Types-Internal or external
- 19. Module IV-Risk management in Insurance • Insurance industry, Impact of globlisation • Opportunities • Essentials to meet the challenges due to globlisation • Regulatory framework in India-IRDA, Reforms • Duties, powers and functions of IRDAI • Role and importance of Actuary-calculating cost, role in pension • Insurance –Types • Reinsurance • Bancassurance
- 20. Alternative risk transfer • Risk transfer through alternative products • Risk transfer through alternative carriers • Insurance securitization-it is transferring of underwriting risks to the capital markets through the creation and issuance of financial securities.
- 21. Claim management • Claims management, handling • LIC, Fire insurance, Marine insurance, moter- insurance