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Basics Prof.C.S.Balasubramaniam
Potential for future returns to vary from the expected returns Any event or possibility of an event which can impair/damage expected earnings/income /cash flow over the short /medium /long term horizon is called risk All kinds of organizations face risks of different kinds and have to learn to deal with and manage risks better to succeed.
Financial sector means banks, financial institutions, stock exchanges ,mutual funds, insurance companies , investment institutions etc Financial intermediaries help in mobilizing household/corporate savings and making them available to deficit units Since they help in credit creation by means of means of loans/advances ,they face many risks . In fact ,taking risk is the core of the most of the financial products/services offered by institutions
Sources of Risk
Technology Prices Market share
Sources of Risk
Competition
Productivity
Sources of Risk
Economic policies of governments and budget deficits/surpluses ,changes in money supply levels of inflation and interest rates ,capital formation Consumption and savings propensities and preferences of consumers resulting in certain patterns of international trade leading to trade surpluses in some economies and deficits in others.
Sources of risk
Political ,social, racial and ethnic issues that impact the availability /demand for a particular commodity/bullion resulting in upheavals /fluctuations in certain markets Technological factors Corporate financial performance and management as result of competition
Risk Policy
Definition of risk management framework in the context of operating and economic environment Strategic ,business ,operational levels at which risk management procedures needs to be implemented Identification of risks and their effects Risk preferences of stakeholders
Risk Policy
Clarity in risk management procedures Identification of external and internal factors that limit application of risk management procedures /strategies Establishing ground rules Tools and techniques &tracking and reporting on risks and steps taken measurement of impact