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Financial Risk

This presentation discusses financial risk. It defines financial risk as the probability of loss from financing methods or instability in financial markets. It identifies the main types of financial risk as market risk, credit risk, liquidity risk, and operational risk. It also outlines strategies for managing financial risk such as establishing goals, identifying risks, analyzing risks, treating risks, monitoring risks, and communicating about risks. Managing financial risk brings benefits like transparency, being proactive, reducing losses, retaining profits, and maintaining customer trust.

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KritikaGupta
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74 views14 pages

Financial Risk

This presentation discusses financial risk. It defines financial risk as the probability of loss from financing methods or instability in financial markets. It identifies the main types of financial risk as market risk, credit risk, liquidity risk, and operational risk. It also outlines strategies for managing financial risk such as establishing goals, identifying risks, analyzing risks, treating risks, monitoring risks, and communicating about risks. Managing financial risk brings benefits like transparency, being proactive, reducing losses, retaining profits, and maintaining customer trust.

Uploaded by

KritikaGupta
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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PRESENTATION ON TOPIC:

FINANCIAL RISK

submitted toPRESENTED BYProf. Ritupurna Das

NLU Jodhpur

RUCHIKA SINGH(605)

TEK CHAND MEENA(614)


&

VIVEK KUMAR MISHRA(616)


LL.M 2014-15
Banking & Finance

PRESENTED BY- RUCHIKA SINGH, TEK CHAND MEENA & VIVEK KUMAR MISHRA

Meaning

Meaning

Risk

can be referred as the chances of having


an unexpected or negative outcome. Any action
or activity that leads to loss of any type can be
termed as risk.
Financial risk refers to the probability of loss in
financing methods which impair the chance to
provide adequate return or in simple words it
can be said that any possibility of the default of
bond issuer by failing to repay principal and
interest in timely manner.
PRESENTED BY- RUCHIKA SINGH, TEK CHAND MEENA & VIVEK KUMAR MISHRA

Conted

Conted

It

can also be said that it arises due to


instability and losses in the financial market
caused by movements in stock prices,
currencies, interest rates etc.
Financial risk term is associated with the
securities related to the corporate and the
government in its wide sense

PRESENTED BY- RUCHIKA SINGH, TEK CHAND MEENA & VIVEK KUMAR MISHRA

Characteristics of
Financial Risk

Characteristics of
Financial Risk

Objectivity-

it means it does not change as


peoples will, it is objective existence. It cant
be eliminated.
Comprehensive- it passes through the entire
process of financial management activities.
Financial risk is consisted in every chain of
financial activities.

PRESENTED BY- RUCHIKA SINGH, TEK CHAND MEENA & VIVEK KUMAR MISHRA

Conted
Conted

Uncertainty-

it is reflected in occurrence of
financial risk, the uncertainty of occurrence
time of financial risk and the uncertainty of the
result of financial risk.
Predictability- it has feature of uncertainty but
if some cautions are followed then there are
some chances of predictions regarding the risk.

PRESENTED BY- RUCHIKA SINGH, TEK CHAND MEENA & VIVEK KUMAR MISHRA

Conted
Conted

Developmental-

it has this special feature that


with rapid development of market economy,
FR is created and developed. High-tech
development and application make the
development
of
financial
risk
more
complicated.

PRESENTED BY- RUCHIKA SINGH, TEK CHAND MEENA & VIVEK KUMAR MISHRA

Causes behind the


Financial Risk

Causes behind the


Financial Risk

Economic

factor-Weakness in the economy,


specific markets, industries or demographic
groups can cause sudden drops in demand for
particular goods or services, leaving small
businesses with less money than they had
anticipated.
Legal factor-Changes in tax laws and industry
regulations can lead to the financial risk. New
laws can even push companies out of business
entirely, such as when popular pharmaceuticals or
food products are banned by a government
authority.
PRESENTED BY- RUCHIKA SINGH, TEK CHAND MEENA & VIVEK KUMAR MISHRA

Types of
Financial Risk

Types of
Financial Risk

Market

Risk- it is possibility of loss to bank


caused by the changes in market variables.
This type of risk arises due to movement in
prices of financial instrument. Market risk can
be classified as Directional Risk and Non Directional Risk. Directional risk is caused due
to movement in stock price, interest rates and
more. Non- Directional risk on the other hand
can be volatility risks.
PRESENTED BY- RUCHIKA SINGH, TEK CHAND MEENA & VIVEK KUMAR MISHRA

Conted

Conted

Credit

Risk- This type of risk arises when one


fails to fulfill their obligations towards their
counter parties. when a bank borrower/counter
party fails to meet the obligations on agreed terms.
Credit risk can be classified into Sovereign Risk
and Settlement Risk. Sovereign risk usually
arises due to difficult foreign exchange policies.
Settlement risk on the other hand arises when one
party makes the payment while the other party
fails to fulfill the obligations.
PRESENTED BY- RUCHIKA SINGH, TEK CHAND MEENA & VIVEK KUMAR MISHRA

Conted

Conted

Liquidity

Risk- This type of risk arises out of


inability to execute transactions. Liquidity risk
can be classified into Asset Liquidity Risk and
Funding Liquidity Risk. Asset Liquidity risk
arises either due to insufficient buyers or
insufficient sellers against sell orders and buy
orders respectively.

PRESENTED BY- RUCHIKA SINGH, TEK CHAND MEENA & VIVEK KUMAR MISHRA

10

Conted

Conted

Operational

Risk- This type of risk arises out


of operational failures such as mismanagement
or technical failures. Operational risk can be
classified into Fraud Risk and Model Risk.
Fraud risk arises due to lack of controls and
Model risk arises due to incorrect model
application.

PRESENTED BY- RUCHIKA SINGH, TEK CHAND MEENA & VIVEK KUMAR MISHRA

11

Management of
Financial Risk

Management of
Financial Risk

Establishing

goals and context


Identifying risks
Analyzing the identified risks
Treating or managing the risks
Monitoring and reviewing the risks and the risk
environment regularly
Continuously communicating, consulting with
stakeholders and reporting.
PRESENTED BY- RUCHIKA SINGH, TEK CHAND MEENA & VIVEK KUMAR MISHRA

12

Controlling the
Financial Risk

Controlling the
Financial Risk

Framework

of Risk Management
Independent Market Risk Management
Independent Credit Risk Management
In-House Expertise and Resources
Risk Reduction Techniques
Valuations and Exposures
Liquidity, Funding Arrangements and Financial
Performance
PRESENTED BY- RUCHIKA SINGH, TEK CHAND MEENA & VIVEK KUMAR MISHRA

13

Importance of
Financial Risk
Management

Importance of
Financial Risk
Management

Transparency
Proactive

customers
Less chance of getting loss
Maximum chances of retaining profit
Retaining the trust of customers
Formulation of policies regarding the financial
management.

PRESENTED BY- RUCHIKA SINGH, TEK CHAND MEENA & VIVEK KUMAR MISHRA

14

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