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
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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
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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
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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
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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
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