4 What is Risk? เข้าใจความ เสี่ยง In Personal Life: Unexpected Costs How bad, within reason, might this problem get? In Corporate: Unexpected Loss “We are willing to countenance a 1 percent chance of a $50 million loss from our trading desks on any given day”
5 Risk Management Process Identify Risk Process- Find Instrument Measure and Estimate Risk Exposures Assess Effects of Exposure From a Risk Mitigation Strategy A, T, M, K Evaluate Performance
6 Identify Risk Exposure Measure Risk Exposure Assess Effects From a Risk Strategy Avoid Transfer Mitigate Keep Performance Evaluation Find Instrument Assess Costs Benefits of Instruments Risk Management Process
18 Credit Risk Credit risk is the ….risk that a change in the credit quality of a counterparty will affect the value of a security or a port folio ….or The risk of economic loss from the failure of an obligor to perform according to the terms and conditions of a contract or agreement
19 Liquidity Risk Funding Liquidity Risk relates to a firm’s ability to raise the cash to roll over its debt: to meet the cash, margin, and collateral requirements of counterparties. Asset Liquidity Risk is the reisk that an institution will not be able to execute a transaction at the prevailing market price.
20 Operational Risk Loses results from Inadequate system – Accounting Risk Management failure Faulty controls Fraud Legal Risk Reputation risk Human Error
21 Legal and Regulatory Risk Change in tax or regulatory Loss due to legal expense
22 Business Risk Change in Demand change in prices market change competion
23 Strategic Risk Strategic risk refers to the risk of significant investments for which there is a high uncertainty about success and profitablility.
29 Risk Management Process Identify Risk Exposure Measure and Estimate Risk Assess Effect Of Exposure Form a Risk Mitigation Avoid Transfer Mitigate Keep Evaluate Performance Find Instruments and Facacilties to shift or Trade Risks Assess Costs and Benefits of Instrument