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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