Course Title: Financial Risk Management

Course Code: FM-553

Credit Hours:3 + 0
Course Instructor:
Prerequisites: Financial Management, Financial Accounting

Textbooks (or course materials):

Analysis of Derivatives by Don M. Chance.
Financial Markets & Institutions: An introduction to Risk Management Approach by Anthony
Saunders and Marcia Millon Cornett, Published July 21st 2003

Course Description
The course explains the risk management types and techniques and its application in the financial
institutions. The speculative hedging approaches critically demonstrate the management
objective risk.

Reference Material:
Investment Analysis and Portfolio Management, 8th Edition, Frank K. Reilly and Keith C. Brown
Financial Markets and Institutions: An Introduction to Risk Management Approach, 6thEdition by
Anthony
Saunders and Marcia Millon Cornett

Course Objectives:
1. To acquaint the students with the categories of risk
2. To demonstrate the hedging approaches to manage risk
3. Introduction to derivatives markets and tools

Course Outcomes:
Technical knowledge about the management of risk in financial and non-financial institutions

Assessment Instrument with weights

Project 10%
Quizzes 5%
Assignments 5%
Midterm 30%
End term 50%

Week 1
 Introduction (Scope of the subject)
 Financial Markets and their role in the global economic system
 Emerging trends in the global Financial Markets
 Risk and its various types
Week 2
 Risk and Return relationship
  Identifying Major Financial Risks
 Foreign currency Risk
 Derivatives Markets, Past present and future, Purpose of derivative markets and its
Criticisms
Week 3
 Interest Rate Risk
 Term structure of interest rate
 Theories for the determination of interest rate
 Risk Management Process
Week 4
 Money Market hedging:
 Hedging a Payment
 Hedging a Receipt
Week 5.
 Forward (Advantages and Disadvantages)
 Pricing and Valuation of Forward Contract
 Currency Forwards
Week 6
 Future(Advantages and Disadvantages)
 Pricing and Valuation of Future Contract
Week 7
Option
 Call option
 Put Option
 Use of Call option for speculation
 Use of Put option for speculation
Week 8
 Option Strategies
o Bull Spread
o Bear Spread
o Butterfly Spread
Week 9
 Straddle
 Straggle
 Strip
 Strap
Week 10
 Credit Risk
 Methods to measure Credit risk
o Qualitative based models Quantitative based models
 Linear Discriminant Analysis (Altman’s Z-Score model) etc
Week 11
  Operation Risk
 Types of Operational Risk

Week 12
Sovereign Risk
 Economic Factors
 Debt Rescheduling

Week 13
 .Value at Risk
 Methods for Computing the VaR
 Assumption of VaR
Week 14
 Factors effecting Value at Risk
 Computation of VaR for each security in portfolio
 Portfolio VaR
 Marginal VAR and Component VAR

Week 15
 Country Risk and its Importance
 Revision