UUM COLLEGE OF BUSINESS

UNIVERSITI UTARA MALAYSIA

No. Information on Course

1. Course Name : FINANCIAL RISK MANAGEMENT

2. Course Code: BWRR3063

3. Name(s) of Academic Staff:

 MADAM TAN SEK CHOO

4. Rationale for the inclusion of the course in the programme:

This is one of the compulsory courses for BRMI (Hons.) students.

5. Semester/Year Offered: 7/4

6. Total Student Learning Face to face Online SLPA TLT

Time (SLT) Learning

7. TL = Traditional Lecture SCL/

TL T P A OL OA
T = Tutorial O

P = Practical
SCL/O = Student Cantered
Learning/Others
A = Assessment
OL= Online Learning 22.48 0 0 16.5 7.69 0 0 73.33 120
OA = Online Assessment
SLPA= Self Learning
Preparation and Assessment
TLT = Total Learning Time

8. Credit Value: 3

9. Pre-requisite (if any):

BWFF2043 ADVANCED FINANCIAL MANAGEMENT

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10. Objective(s) of Course :
After completing this course, students should be able to:
i. understand how financial risk arises and how it can be managed.
ii. know major type of financial risks and its components such as market risk, credit risk,
operational risk and liquidity risk.
iii. acquire a clear understanding of the underlying theory, techniques and strategies of
managing financial risks.
iv. acquire knowledge on how to measure potential risk and losses.
v. understand the risk management standards in relation to regulation and compliance.

11. Course Learning Outcomes:

Upon completion of the course, students are able to
i. identify different types and components of fin risk faced by a firm (C1, P1, A1).
ii. describe sources of financial risks and how fin risks can be managed (C2, P2, A2).
iii. evaluate the effects of financial risk management on organization’s decision making (C4,
P4, A3).
iv. discuss the risk management standards, regulatory and compliance framework for
financial risk management (C3, P3, A2) .
v. analyse various financial instruments used to manage financial risks (C3, P3, A2).
vi. analyse and measure risk of the firm using VaR (C3, P3, A2).

12. Transferable Skills:

1. Writing: report writing and analysis of problems.
2. Communications: discuss and comments on issues.
Analyzing various methods, regulatory framework and issues in financial risk management.

13. Teaching-learning and assessment strategy:

Mixed method between teacher-centred and students-centred. For the assessment strategy it is a
continuous assessment.

14. Synopsis:
Risk is an important element feature in any businesses. A company confronts risks associated with
the underlying business and financial risks related to market, operational, liquidity and credit risks.
These risks influence the decision making process and future performance of a company. In this
course, students will learn about the four major types of financial risks; how the risks can be
measured and managed. Hence, students will be exposed to risk measurement concept such as
Value at Risk (VaR) and examine various types of derivative that can be used to hedge financial risks.
Beside these, students will also gain insights about alternative risks transfer methods. Students are
required to complete a project related to financial risk management issues in order to enhance their
understanding about the subject.

15. Mode of Delivery:

This course will be conducted in the forms of lectures, discussions and case study.

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 Assessment Methods and Types:
16.
Coursework – 60%
- Quiz 1 – 5%
- Quiz 2 – 5%
- Quiz 3 – 6%
- Mid Semester Exam -15%
- Assignment 1 – Critical Evaluation of Literatures – 10%,
- Assignment 2 – Critical incident analysis and Presentation – 20%
Examination – 40% (Final Examination)
17. Mapping of the course/module to the Programme Aims

Programme Aims Course Learning Outcomes

1 2 3 4 5

The aims of Bachelor of Risk Management and

Insurance (Hons) programme are to produce
intellectual, expert, competent and courteous
√ √ √ √ √
graduates in the filled of risk management and
insurance in order to meet the demand for
workforce in related disciplines.

18. Mapping of the course/module to the Programme Learning Outcomes

Course Learning Outcomes

Programme Learning Outcomes

1 2 3 4 5 6

Identify and explaining the concepts and

theories related to risk management and √ √
insurance.

Apply concepts, tools, and techniques in

√ √ √ √ √ √
solving risk management problems

Analyse critically and analytically in making

√
effective decisions.

Able to express ideas logically and accurately √ √ √

Portray good interpersonal skills

Able to demonstrate integrity and

professionalism

Nurture interest for life-long learning

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 Demonstrate entrepreneurial skill and
capabilities in identifying business
opportunities

Demonstrate leadership skills √

19. Content outline of the course/module and the SLT per topic

Face to Face
Learning
Topic Outcom OL SL TLT
SCL
es TL T P
/O
1. Introduction
1.1. Financial Risk Exposure
1.2. Identifying Major Financial Risk 1 3 3 6
1.3. What is Financial Risk Management?

2. Risk Management Standards

2.1. Reglations of financial institutions
2.2. Corporate governance 1
4 2 3 6
2.3. ISO 31000 on financial risk mgmt
2.4. FRM Framework and Process

3. Market Risk
3.1. Foreign Exchange Risk
3.1.1.Transaction Exposure
3.1.2.Translation Exposure
3.1.3.Foreign Exchange Exposure from
Commodity Prices
3.1.4.Strategic Exposure
3.2. Interest Rate Risk
3.2.1.Absolute Interest Rate Risk
3.2.2.Yield Curve Risk
3.2.3.Reinvestment / Refunding Risk
3.3. Commodity Risk 1
2,3 3 1 5 10
3.4. Commodity Risk
3.4.1.Commodity Price Risk
3.4.2.Commodity Quantity Risk
3.4.3.Contango and Backwardation
3.4.4.Commodity Basis
3.4.5.Special Risks
3.5. Equity Price Risk

4. Credit Risk
4.1. Settlement Risk During a Short
Window
4.2. Components of credit risk system
and the evolution of credit risk
measurement systems

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 4.3. How to construct the distribution 2,3 3 1 1 5 10
of credit loss for a portfolio
4.4. Correlations effect
4.5. How to manage credit risk
4.6. Basle requirements for credit risk

5.0 Operational Risk

5.1 Define Operational Risk
5.2 Categorization of Operational Risk 2,3, 3 1 1 5 10
5.3 Assessing Operational Risk
5.3.1 Comparisons of
Approaches
5.3.2 Loss Severity vs. Loss
Frequency
5.4 Managing Operational Risk
5.4.1 Capital Allocation and
Insurance
5.4.2 Mitigating
Operational Risk
5.5 Firm wide Risk Management
5.5.1 TheThree Pillar
Framework: Best
Practice Policies,
Methodologies and
Infrastructure
5.5.2 Controlling Traders

6.0 Liquidity Risk

6.1 Traditional View of Liquidity Risk
6.2 Liquidity Adjusted VaR
6.3 Liquidity Black Holes 2,3 3 1 1 5 10
6.4 Long Term Capital Management
Liquidity Vs. Profitability

7.0 Measuring Risk

7.1 Definition and Concept of VaR
7.2 Properties of Risk Measures 6 3 1 1 6 10
7.3 Choice of Parameters for VaR
7.4 Marginal VaR, Incremental VaR,
Component VaR
7.5 Back Testing
7.6 Stress Testing

8.0 Financial Products and Risk Hedging

8.1 Introduction to Derivatives
8.2 Forward and Futures Contract
8.3 Options
8.4 Swaps
8.5 Exotic Options 5 3 3 6
8.6 Catastrophic bonds
8.7 Alternative Risk Transfer

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9.0 Financial Products and Risk Hedging
9.1 Introduction to Derivatives
9.2 Forward and Futures Contract
9.3 Options 5 3 3 6
9.4 Swaps
9.5 Exotic Options
9.6 Catastrophic bonds
9.7 Alternative Risk Transfer

10.0 Issues in FRM

10.1 Securitization and the 2007
Credit Crisis
10.1.1 Securitization
10.1.2 Subprime Mortgage
Securitization in the 1,2,3,4,5 3 1 1 5 10
U.S
10.1.3 Avoiding Future Crisis
10.2 Contemporary Issues
10.2.1 Case Studies

TOTAL 22.5 3 16.5 42 84

Student Learning & Online Online

Face to Face SLPA TLT
Assessment Learning Assessment

Course Delivery and

42 0 42 84
Preparation

Coursework 60% 2.15 0 20.33 22.48

Final Examination 40% 2.5 0 11.0 13.5

Total Notional Hours 46.65 0 0 73.33 120

Credit Hours 3

Main References:

Hull, J. C. (2010). Risk management and financial institutions. New Jersey: Prentice Hall.

Additional References:

Horcher, Karen A. (2005). Essentials of financial risk management. New Jersey: John Wiley & Sons,
Inc.

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Chance, D. M. & Brooks, R. (2010). An introduction to derivatives and risk management. Canada:
South-Western

Cusatis, P. & Thomas, M. (2005). Hedging instruments and risk management: How to use derivatives
to control financial risk in any market. United States: McGraw-Hill.

Jorion, P. (2011). Financial risk manager handbook. New Jersey: John Wiley & Sons, Inc.

Murphy, D. (2008). Understanding risk: The theory and practice of financial risk management. United
States: Chapman and Hall/CRC.