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FRM Unit1
FRM Unit1
Management
U.RAMBABU
MBA,MCOM.
Assistant Professor
School of Management Studies
LBRCE, Mylavaram
CONCEPT OF RISK
Aprobabilityorthreatofdamage,
Finance:
DEPENDING
Risk management
Risk
management is a process of
thinking systematically about all
possible risks, problems or disasters
before they happen and setting up
procedures that will avoid the risk, or
minimize its impact , or cope with
its impact
RISK MANAGEMENT
Identifies
loss
exposures
faced by
an
organizati
on.
Loss
exposure
is any
situation
or
circumstan
ce in
which loss
is possible.
Highlights
the most
appropriate
techniques
for treating
loss
exposures.
Objectives of Risk
Management:
Pre loss :
The firm should prepare for potential
losses in the most economical way.
Reduction of anxiety
Meet any legal obligation.
Post loss:
Survival of the firm
Continue operating
Stability of earning
Continue growth of the firm
Minimize effects that a loss will have
on other persons and society.
Elements of Uncertainty
Possibility
down side.
Adverse
result.
Favorable
results.
possibility
of
outcome
being
Elements of Uncertainty
Uncertainty
the
outcomes
are
unknown
Elements of Uncertainty
Risk
is measurable.
higher
risk.
What
Uncertainty
flows.
of
future
cash
Sources of Risk
Risk
Sources of Risk
no
Trading
Natural
calamities (disasters).
Stock
Not
market fluctuations.
Sources of Risk
Political
changes.
Wars.
Damage
of reputation.
Mishappenings
New
in operations.
entrants/substitutes.
Types of Risks:
1.
2.
Exchange risk.
3.
Liquidity risk.
4.
Default risk.
5.
6.
7.
Financial risk
Types of Risks:
8. Events of god.
9. Market risk
10. Marketability risk
11. Credit risk
12. Personal risk
13. Environmental risk
14. Production Risk
Types of Risks:
Interest
Rate Risk:
Types of Risks:
Exchange
Risk:
Types of Risks:
Liquidity
Risk:
Types of Risks:
Default
Risk:
Types of Risks:
Types of Risks:
External
factors
Business Risk:
not
in
the
control
government.
Eg: Delayed monsoons
Fiscal Policy
stability of the government
of
Types of Risks:
Financial
Risk:
level of debt
Smaller the debt smaller is the
risk.
reflects in bankruptcy
Types of Risks:
Event of God:
risk completely due to unexpected events.
Eg: fire accidents
strikes
cyclone
earthquake