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Welcome TO Financial Market

This document provides an overview of various types of risks faced by banks. It discusses credit risk, market risk including interest rate risk, liquidity risk, foreign exchange risk, operational risk, environmental risk, and regulatory risk. Credit risk is the risk of losses due to borrower default. Market risk includes the risk of losses due to changes in interest rates, currency exchange rates, and other market variables. Liquidity risk is the risk that assets cannot be traded quickly. Operational risk arises from issues related to people, systems, and processes. Regulatory risk stems from the regulations banks must comply with.

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Radha Jadhav
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69 views21 pages

Welcome TO Financial Market

This document provides an overview of various types of risks faced by banks. It discusses credit risk, market risk including interest rate risk, liquidity risk, foreign exchange risk, operational risk, environmental risk, and regulatory risk. Credit risk is the risk of losses due to borrower default. Market risk includes the risk of losses due to changes in interest rates, currency exchange rates, and other market variables. Liquidity risk is the risk that assets cannot be traded quickly. Operational risk arises from issues related to people, systems, and processes. Regulatory risk stems from the regulations banks must comply with.

Uploaded by

Radha Jadhav
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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WELCOME TO Financial market

Name of group member :1. Radha Jadhav (05) 2. Anita Chuhan (01) 3. Sonam Nadar(13)

Submitted To Prof. Kala barai

Risk in banking

What is Risk?

The etymology of the world Risk can be traced to the Latin word Rescum meaning risk at sea or that which cuts.

What is bank risk?


Risk is associated with uncertainty and reflected by way of charge on the funda- mental/basic i.e. In the case of business it is the capital, which is the cushion that protects the liability holders of an institution.

1. Credit Risk

A. Credit risk is defined by the losses in the event of default of the borrower to repay his obligation or in event deterioration of the borrowers credit quality. B. Recoveries would depend upon any credit risk such as guarantee, either collateral or third party.

c. The objective of credit risk management Is to minimize the risk and maximize banks risk adjusted rate of return by assuming and maintaining credit exposure within the acceptable parameters.

2.Market Risk

Market Risk may be defined as the possibility of loss to bank caused by the changes in the market variables. It is the risk that the value of on-/off-balance sheet positions will be adversely affected by movements in equity and interest rate markets, currency exchange rates and commodity prices.

Types of market risk

Interest Rate Risk is the potential negative impact on the Net Interest Income Changes in interest rate affect earnings, value of assets, liability offbalance sheet items and cash flow. Type of interest risk 1.Gap/Mismatch risk 2.Basis risk 3.Reprice risk

The risk of an investments value changing due to changes in currency exchange rate.

3. Liqudity Risk

Liquidity risk is the risk that a given security or assets cannot be traded quickly enough in the market to prevent a loss or make the required profit.

4.Forex Risk

When companies conduct business across border, they must deal in foreign currencies companies must exchange foreign currencies for home currencies when dealing with receivable & vice versa for payables.

5. Operational risk
An operational risk is, as the name suggest, a risk arising from execution of companys business functions. it is very broad concept which focuses on the risk arising from the people, system & process through which a company operates.

When operational risk arises?

Example
Date
Nov -85

Type of Firm
Bank

Loss (in USD)


4 million

Brief Description of Allegation


Computer problems with Fed payment connection

Feb-93 Apr-94

Corporate Brokerage Firm

1.04 billion 350 million

Unauthorized futures trading False profits reported for two years

Feb-96 Jun-96 Aug-`96

Bank Bank Bank

1.1 billion 1.3 billion 1.8 billion

30,000 unauthorized trades over 11 years Unauthorized copper trading futures, etc. Deal allocations delayed for personal profit

6.Environmental Risk
As the years roll by and technological advancement take place, expectation of the customers change and enlarge. With the economic liberalization and globalization, more national and international players are operating the financial markets, particularly in the banking field.

7. Regulatory Risk
When owned funds alone are managed by an entity, it is natural that very few regulators operate and supervise them. as banks accept deposit from public obviously better governance is expected of them. As banks deal with public funds and money, they are subject to various regulations. Reserve Bank of India (RBI), Securities Exchange Board of India(SEBI), Department of Company Affairs (DCA),

ANY QUESTION ?

K N A H T

U O Y

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