CGMA TOOL Financial Risk Management: Market Risk Tools And .
CGMA TOOLFinancial risk management:Market risk tools and techniques
Two of the world’s most prestigious accounting bodies, AICPA and CIMA,have formed a joint venture to establish the Chartered Global ManagementAccountant (CGMA ) designation to elevate and build recognition ofthe profession of management accounting. This international designationrecognises the most talented and committed management accountantswith the discipline and skill to drive strong business performance. CGMAdesignation holders are either CPAs with qualifying management accountingexperience or associate or fellow members of the Chartered Institute ofManagement Accountants.
CONTENTSINTRODUCTION2DIFFERENT TYPES OF FINANCIAL RISK3RISK MANAGEMENT SYSTEM4RISK STRATEGIES4MARKET RISK TOOLS5Internal Strategies5Risk-Sharing Strategies5Risk-Transfer Strategies7THE NEED FOR CLEAR STRATEGIES, POLICIES ANDDISCLOSURES9CONCLUSIONS10APPENDIX I: QUANTIFYING FINANCIAL RISKS11Regression Analysis11Value-at-Risk11Scenario Analysis13RESOURCES AND FURTHER READING15
INTRODUCTIONRecent economic and political forces around the world, including challenges in Greece, Chinaand other economies, falling oil and other commodity prices, along with fluctuations in foreignexchange rates, have had a significant impact on many businesses. The increase in thesefinancial risks has mandated that companies revisit their strategies related to these risks andtheir financial statement disclosures.2FINANCIAL RISK MANAGEMENT: MARKET RISK TOOLS AND TECHNIQUES
DIFFERENT TYPES OF FINANCIAL RISKFinancial risks create the possibility of losses arising from credit risks related to customers, suppliersand partners, financing and liquidity risks, and market risks related to fluctuations in equity prices,interest rates, exchange rates and commodity prices. This tool will focus on management tools andtechniques for mitigating market-oriented financial risks.These financial risks are not necessarily independentof each other. For instance, exchange rates and interestrates often are strongly linked, and this interdependenceshould be recognized when managers are designing riskmanagement systems.and an increase in a company’s ability to access financingand exploit other opportunities.The benefits of managing financial risks include theprotection of cash flows and a reduction in earningsvolatility. This can contribute to a lower cost of capital,This tool will focus on management tools and techniquesfor mitigating market-oriented financial risks.Financial risks can be subdivided into distinct categories;a convenient classification is indicated in Figure 1 below.Figure 1: Categories of financial riskCredit risksFinancing/liquidity risksCustomer risksFinancingMarket risksEquity risksInterest ratesSupplier risksMarket liquidityExchange ratesPartner risksCash flowsCommodity pricesSource: Fraud risk management: A guide to good practice, CIMA, 20023
RISK MANAGEMENT SYSTEMThe core elements of a financial risk managementsystem are: Risk identification — The first stage is to identify therisks to which the organization is exposed. Assessment — The scale of each identified risk is thenestimated, using a mix of qualitative and quantitativetechniques (See Appendix 1). Prioritization — After this, risks are prioritized. Acommonly used approach is to map the estimatedrisks against a likelihood/impact matrix. (See CGMArisk management tool How to communicate risks using aheat map). Risk response — The organization then needs todevelop responses to the risks it has identified. Implementation — Having selected a risk response,the next stage is to implement it and monitor itseffectiveness in relation to specified objectives.RISK STRATEGIESKnowing the potential scale and likelihood of any givenfinancial risk, management needs to decide how to dealwith it. This means deciding whether it wishes to accept,partially mitigate, or fully avoid the risk. Differentstrategies and tools exist for each of these choices and foreach risk type. Risk transfer strategies involve paying a third partyto take over the downside risk, while retaining thepossibility of taking advantage of the upside risk.An option, for example, creates the opportunity toexchange currency at a pre-agreed rate, known as thestrike price. If the subsequent exchange rate turns outto be favorable, the holder will exercise the option,but if the subsequent exchange rate is unfavourable,the holder will let it lapse. Thus, the option protectsthe holder from downside risk while retaining thepossible benefits of upside risk.Choosing the most appropriate strategy and specifictool depends upon the risk appetite, level of expertise inthe business, and the cost effectiveness of the particulartool. The board of directors sets the organization’srisk appetite, so it is important for board members tounderstand the methods being used to manage risk intheir company.The key to successful risk management in anyorganization is creating a risk-aware culture in whichrisk management becomes embedded within theorganizational language and methods of working.Figure 2: Risk Strategies and Tools Internal strategies imply a willingness to accept therisk and manage it internally within the frameworkof normal business operations. An example would bea decision to use the customer’s currency for pricingof all exports, and using internal netting processes tomanage currency exposures. Risk-sharing strategies relate to strategies thatmitigate or share risks with an outside party. Anexample would be a forward contract, which “locksin” a particular future price or rate. This preventslosses from unfavourable currency movements, butlocks the buyer into a fixed future exchange rate.Another example is a joint venture.4FINANCIAL RISK MANAGEMENT: MARKET RISK TOOLS AND TECHNIQUESInternal Strategies — Accept and manageas a normal operating risk Natural hedging Internal nettingRisk Sharing Strategies — Risk sharingarrangements involving outside parties Forwards Futures Joint ventures SwapsRisk Transfer Strategies — Risk transfer whilemaintaining upside benefits Options Insurance Securitization
MARKET RISK TOOLSINTERNAL STRATEGIESNatural hedging is internal to a business and takesadvantage of the fact that different risk exposures mayoffset each other.Internal netting is a form of natural hedging whereoffsetting exposures are identified to come up with a netbalance that a company can make a decision about.Uses — Primarily used in managing foreign exchangeand interest rate risks.Uses — To manage multiple internal exposures acrossa range of currencies.EXAMPLE 1: USING NATURAL HEDGING TO MITIGATE EXCHANGE RATE RISKA Canadian company is sourcing supplies of household textiles in India, and is therefore exposed to therisk of movements in the exchange rate between the Canadian dollar and the Indian rupee. At the sametime, the business is developing a new retail business in India.Natural hedging means that it could use the rupee-denominated retail income to fund the payments to itslocal textile suppliers. In this way, the currency risk on an asset is matched by an opposite (and potentiallyexactly equal) currency risk on a liability. Consequently, the overall exposure is eliminated or, at the veryleast, reduced.In such cases, there may be little need to hedge the individual asset or liability exposures because thefirm’s aggregate exposure is fairly limited.RISK-SHARING STRATEGIESForwards are contracts made today for delivery of anasset at some specified future date, ata pre-agreed price.Uses — To protect against possible rises in asset prices– most commonly either commodities (gas, oil, sugar,cocoa, etc.) or currencies.A forward contract allows the buyer to lock into the priceto be paid, thus protecting the buyer against the risk thatthe future spot price of the asset will rise. It also protectsthe seller against the risk that the future spot pricewill fall. On the agreed delivery date, the buyer takesdelivery of the underlying asset and pays for it. At thatdate, the buyer has a position whose value is equal tothe difference between the agreed forward price and thecurrent spot price. Other things being equal, the valueof this position will be positive if the spot price has risen,or negative if the spot price has fallen. In some cases,forward contracts call for the buyer to pay or receive, incash, the difference between the forward and terminalspot prices.Forward contracts are tailor-made and traded over-thecounter (OTC) between any two willing counter-parties,each of whom is exposed to the risk of default by theother on the contract. The forward contracts thereforecreate credit risks that the firms concerned need to manage.5
Futures contracts are a form of standardized forwardcontract that are traded exclusively on organizedexchanges.Uses — In principle, futures may be used to protectagainst changes in any asset or commodity price, interestrate, exchange rate, or any measurable random variablesuch as temperature, rainfall, etc.Contract sizes for futures are standardized, meaningthat they lack the flexibility of forward contracts.Additionally, it is not possible to use straightforwardfutures contracts to protect against price changesfor all commodities. Nonetheless, the protection thatfutures (and also forwards) provide can be vital forall commodities that are significant components ofproduction.The counterparty to any futures contract is theexchange itself. This means that firms taking futurespositions face negligible default risk. The exchangeprotects itself against default risk by obliging firmsinvolved to maintain margin accounts. Every day, thevalue of the position is marked to market, and gains orlosses are settled immediately. So, for example, if a firmhas a purchased a futures position (i.e., one that increasesin value if the futures price should rise), and if thefutures price does in fact rise, then the firm can takeits profit. But if the futures price should fall, the firmwill realize a loss and may face margin calls. Futurescontracts are more liquid than forward contracts, but thefirm also has to take account of the possibility of margincalls that may strain liquidity.Swaps are a contracts to exchange the differencebetween two cash flows at one or more agreedfuture dates.Uses — Management of interest rate and exchangerate risks. More recently, markets in commodity andcredit risk swaps have developed. Swaps can be usedto (a) reduce funding costs, arbitrage tax or fundingdifferentials, (b) gain access to new financial markets,and (c) circumvent regulatory restrictions.Many swaps also involve exchanges of cash flowsacross currencies. An example of such a cross-currencyinterest rate swap is where a firm might convert6FINANCIAL RISK MANAGEMENT: MARKET RISK TOOLS AND TECHNIQUESEXAMPLE 2: PLAIN VANILLA INTERESTRATE SWAPA “plain vanilla” fixed-for-floating interest rateswap enables a firm to convert a position in afloating rate loan into a position in a fixed rateone, or vice-versa.In this swap, one party agrees to pay a secondparty a predetermined, fixed rate of intereston a notional principal on specific dates fora specified period of time. Concurrently, thesecond party agrees to make payments basedon a floating interest rate to the first partyon that same notional principal on the samespecified dates for the same specified timeperiod.In a plain vanilla swap, the two cash flowsare paid in the same currency. Contractsusually allow for payments to be netted, andat no point does the principal change hands(principal is “notional”).As an example: on Dec. 31, Company ABCand Company XYZ enter into a five-year swapwith payments to be exchanged annuallyDec. 31 under the following terms: Company ABC pays Company XYZ anamount equal to 4% per annum on anotional principal of 25 million. Company XYZ pays Company ABC anamount equal to one-year LIBOR 1% perannum on a notional principal of 25 million. On Dec. 31 of year one LIBOR was 2.75%.Therefore payments for the first year wouldbe determined as follows: Company ABC will owe Company XYZ 1,000,000 ( 25,000,000 * 4%) Company XYZ will owe Company ABC 937,500 ( 25,000,000 * (2.75% 1%) Therefore, Company ABC will pay CompanyXYZ the net of 62,500.
floating-rate payments in the Canadian dollars intofixed-rate payments in the U.S. dollars. Another exampleis a diff swap, in which the counterparties swap, say,Canadian dollar payments at the Canadian interest rateinto Canadian dollar payments at the U.S. interest rate.Other common swaps are commodity swaps, where oneor more swap legs are tied to a commodity price such asthe price of oil or an agricultural price.Swaps are highly flexible instruments that are tradedOTC, and can be arranged at low cost compared to mostother alternatives, but they also have disadvantages.Most importantly, as with forwards, the parties to swaparrangements expose themselves to mutual default risks,although many “credit enhancement” techniques haveevolved to deal with these exposures.Joint ventures imply that an organization is willing toaccept a given level of risk, but it may wish to share thatrisk with another party.Uses — Expansion into new markets where sharedknowledge, as well as shared costs, helps to reduce risks.RISK-TRANSFER STRATEGIESOptions are contracts that give the holder the right (but,unlike forward or futures contracts, not the obligation)to buy or sell an underlying asset at an agreed price atone or more specified future dates. The agreed price isknown as the strike or exercise price. An option thatinvolves the right to buy is known as a call option andone that involves the right to sell is a put option. Optionscome in a great variety of forms, and can be exchangetraded as well as traded OTC.The vast majority of options can be classed as Europeanor American, depending upon when the option may beexercised. A European option gives the holder the rightto exercise the option at a fixed future date; an Americanoption gives the holder the right to exercise at any timeuntil the date the option expires. Other more exoticoptions, such as the Bermudan option, offer variations onthe holder’s right to exercise over the period of time untilthe option expires.Some of the other more common variants on exerciserights include: caps and floors, in which a price orrate is capped or floored; Asian options, in which theunderlying is an average rather than a spot price; andbarrier options, of which the most important are knockout options that automatically become worthless if theunderlying hits or exceeds a stipulated barrier.Uses — There are many potential uses of options,including the following examples: Firms might use caps on interest rates to hedge theirinterest rate exposure, or caps and floors on exchangerates to hedge their foreign exchange rate risk. Options on fuel prices may be used to hedge fuelbills (e.g., by airlines), where the main concern is theaverage price of fuel over an extended period. A firm might purchase an option with a knock-outbarrier on an exchange or interest rate (a) because itis cheaper than a “regular” option, (b) because it doesnot expect the underlying to hit the barrier anyway,or (c) if the firm is otherwise “covered” should thebarrier be breached.Options give the holder downside protection so thatthe maximum possible loss is limited to the premium(or price) of the option. But they can still get the upsideprofits if the underlying goes the right way. Thisattractive feature makes options expensive relative tomost other derivatives.Options are similar in nature to insurance, but althoughtheir functions are similar, an option does not satisfythe legal definition of insurance. For example, tolegally purchase insurance, the purchaser must have aninsurable interest in the property being insured, but thereis no such requirement when purchasing an option.7
Insurance — Many risks, such as risk of loss of ordamage to buildings or contents by fire, are bestmanaged by traditional insurance. The payment of apremium secures the purchaser against losses on theinsured asset.The purchase of insurance often is obligatory, either forlegal reasons or as precondition for credit — as is the casewith mortgages.Self-insurance — The firm may decide to bear certaintypes of risk itself, and possibly set up its own insurancecompany (known as a captive insurance company) toprovide the cover.Self-insurance also often is used to cover employeebenefits such as health benefits, in addition to coveringcertain types of litigation risks, and may be combinedwith purchased insurance. Captive insurance companiesmay retain all of the insured risk or choose to reinsure aportion of it in the open market.Securitization — The conversion of financial assets(such as credit cards, bank loans, and mortgages) orphysical assets into financial instruments that can betraded, often through the use of special-purpose vehicles.Securitization creates the potential to increase the scaleof business operations through converting relativelyilliquid assets into liquid ones.Examples of businesses that have been securitizedinclude airports, motorway service stations, officeaccommodation, and utilities. More recently, firmshave begun to securitize the risks associated with theirpension funds.8FINANCIAL RISK MANAGEMENT: MARKET RISK TOOLS AND TECHNIQUESEXAMPLE 3: FOREIGN EXCHANGEOPTIONS TO HEDGE EXCHANGERATE RISKA firm could buy put options to protect thevalue of overseas receivables. Similarly, itcould protect against the increase in costof imports (overseas payables) by buyingcall options.Suppose that a U.S. company has a netcash outflow of 300,000 in payment forclothing to be imported from Germany.The payment date is not known exactly, butshould occur in late March. On Jan. 15, aceiling purchase price for euros is lockedin by buying 10 calls on the euro, with astrike price of 1.18/ and an expirationdate in April. The option premium onthat date plus brokerage commissionsis .0250, or a unit cost of 1.2050/ .The company will not pay more than 1.2050/ . If euros are cheaper thandollars on the March payment date, thecompany will not exercise the call optionbut simply pay the lower market rate of,say, 1.12/ . Additionally, the firm will sellthe 10 call options for whatever marketvalue they have remaining.
THE NEED FOR CLEAR STRATEGIES, POLICIESAND DISCLOSURESMany of the tools discussed in the previous section are derivatives, or financial instruments whosepayoffs depend on the realized values of one or more underlying random variables. It is thereforeappropriate to offer some further advice on how derivatives should (and should not) be used.DESIGN OF HEDGING STRATEGIESA firm needs to design hedging strategies carefully.Three important issues that arise especially withderivatives hedging strategies are basis risk, leverage andthe financing risk implied by any hedging strategy: Basis risk is the “residual” risk that remains oncea position has supposedly been hedged. Basis riskis almost always a problem, but it is especiallypronounced in cases such as credit and catastrophe(“cat”) derivatives, where hedging is hampered by thedifficulties of specifying trigger events that closelymatch the actual events that firms are trying tohedge against. For instance, if the catastrophic eventin a cat derivative is not chosen carefully, a firmmight experience a real catastrophe, but not the onespecified as calling for a derivative payout. The hedgeinstrument must therefore be carefully chosen toavoid excessive basis risk. A hedge with a lot of basisrisk is of little practical use, and can leave the firmvery exposed without the firm’s management beingaware of it. As the saying goes, the only perfecthedge is in a Japanese garden. Leverage is the gain or loss on a position relativeto the movement of an underlying risk factor. Manyderivatives such as futures and options offer theprospect of high leverage. This can be useful becauseit enables a “large” position to be hedged by a“small” one. However, a highly leveraged positionmagnifies losses as well as gains: what goes up canalso go down.example, a firm that hedges a forward positionwith a futures hedge can experience significantliquidity repercussions if the firm faces margin callson its futures position. In addition, a firm’s creditrisk strategies can also have significant liquidityimplications. An example would be where a firm getshit with the need to make new collateral paymentsor otherwise renegotiate a credit enhancementarrangement after it suffers a credit downgrade.Credit enhancement can be good for managing creditrisks, but can leave the firm exposed to liquidityproblems at exactly those moments when financingbecomes more expensive and harder to obtain.THE NEED FOR A CLEARDERIVATIVES POLICYUnderlying the above issues, the complexity andpotential dangers involved in the use of derivativesinstruments make it important for every firm to havea clear derivatives policy. The need for such a policy isreinforced by the standards on accounting for financialinstruments, which require the firm to document therationale for the use of any derivative and to disclosethe costs associated with derivatives hedging. A detaileddescription of the financial accounting standards isbeyond the scope of this tool but in important noteis that the rules distinguish between derivatives heldfor speculative or trading purposes and those held forhedging. The distinction requires a clear declarationof the management intent behind holding a financialinstrument as a hedge. Financing risk relates primarily to the liquidityimplications of risk management strategies. For9
FINANCIAL STATEMENTDISCLOSURESAs noted above, a detailed description of the financialaccounting standards for financial instruments is beyondthe scope of this tool. However, broadly speaking, inaddition to providing information about its accountingpolicies, an entity must provide substantive additionaldisclosures related to the various types and categoriesof financial instruments, along with the strategies it isdeploying, and the significance of financial instrumentsfor their financial position and performance.The essence of the requirements is that gains and lossesare offset and that strategies and risks are adequatelydisclosed. Disclosures should encompass the broadeconomic context that the company faces and thepotential effects of fluctuations on business operationsand plans.CONCLUSIONSIt is therefore critical to establish a framework thatfacilitates the identification and quantification of themain types of risk to which a firm is exposed, and setsout the main tools and techniques that the firm will useto manage those exposures.The importance of financial risk management isreinforced by the increasing globalization and relatedextension of the boundaries of companies for valuecreation, including sourcing, business partnerships andnew markets.10FINANCIAL RISK MANAGEMENT: MARKET RISK TOOLS AND TECHNIQUES
Appendix 1: Quantifying financial risksThree commonly used approaches to quantifying financial risks are regression analysis, Value-at-Riskanalysis, and scenario analysis. It is helpful to look at each method in more depth to understand theirrespective strengths and weaknesses.REGRESSION ANALYSISRegression analysis involves trying to understand howone variable — such as cash flow — is affected by changesin a number of other factors (or variables) that arebelieved to influence it.For example, the cash flow for a UK-based engineeringbusiness may be affected by changes in interest rates(INT), the euro/sterling exchange rate (EXCH), andthe price of gas (GAS). The relationship between thevariables can be expressed as follows:Change in cash flow ₔ ß1 INT ß2EXCH ß3 GAS ҙfirm against a change in the exchange rate.Of course, in practice, no hedge is ever perfect, andthis approach to selecting a hedge also assumes a stableregression equation. Even mildly volatile economicconditions make this assumption rather dubious, butthe example does illustrate how regression-basedhedge positions can help reduce a firm’s exposure toa risk factor.Regression analysis can also be used for financialreporting purposes, as a means of determining theeffectiveness of a hedging transaction.VALUE-AT-RISKThe coefficients ß1, ß2 and ß3 reflect the sensitivity ofthe firm’s cash flows to each of the three factors. Theequation is easily estimated using standard packages(including Excel), and the estimated coefficients can beused to help determine the firm’s hedging strategy.Another popular approach to risk measurement isValue-at-Risk (VaR) analysis. The VaR can be definedas the maximum likely loss on a position or portfolio ata specified probability level (known as the confidencelevel) over a specified horizon or holding period. So, forexample, a company may own an investment portfolioon which the risk manager estimates the VaR to be 14 million, at a 95% confidence level over a ten-dayholding period. This means that if no investments arebought or sold over a ten-day period, then there is a95% chance of the portfolio falling by no more than 14 million. VaR is therefore an estimate of the likelymaximum loss, but actual losses may be either above orbelow VaR.To continue the example, suppose ß2 is negative,implying that the firm’s cash flow would fall if theexchange rate went up. If the firm wished to hedge itscash flow against such an event, then it might do so bytaking out a forward contract. If the exchange rate rose,the resulting drop in cash flow would be countered byan equivalent rise in the value of the forward contract.Thus, assuming the hedge position was properlydesigned and implemented, the result is to insulate theThe VaR is an attractive approach because it is expressedin the simplest and most easily understood unit ofmeasure, namely dollars lost, and because it gives us asense of the likelihood of high losses. However, VaR alsohas a serious drawback: it tells us nothing about what toexpect when we experience a loss that exceeds the VaR.If the VaR at a particular confidence level is 10m, wehave no idea whether to expect a loss of 11m or 111mwhen losses occur that are greater than the VaR.Where INT represents the change in interest rates,EXCH represents changes in the euro/sterling exchangerate, GAS represents changes in the commodity price,and ҙ represents the random error in the equation. Therandom error reflects the extent to which cash flows maychange as a result of factors not included in the equation.11
Although VaR originally was developed to estimatemarket risks, its basic principles easily extend to liquidityrisks, financing risks and different types of credit riskexposure. To give an example, a board of directors mightset an earnings target of, say, 80 pence per share, butalso be conscious that if the earnings per share (EPS)fell below 70 pence then there would be strong adversereaction from the market, causing the share price to fall.The board may therefore wish to ensure that there isonly, say, a 5% likelihood of earnings falling to 70 penceper share. It is possible for organizations to constructa model that measures the sensitivity of earnings tochanges in the market prices of financial assets orliabilities, and use this model to estimate a VaR to assesstheir potential exposure if such risks are left partially orwholly unhedged.Another example is the application of VaR methodsto estimate the riskiness of pension funds. Changes inthe accounting standards for post-employment benefitshave led to increased management awareness of thevalue of company pension funds, because of the rules ondisclosure of surpluses/deficits. VaR can then be a usefultool for helping manage the risk of huge variations in thepotential surplus or shortfall in company contributions.Such volatility is a particular characteristic of definedbenefit schemes, where managers face uncertainty overthe employment, retirement, and salary profiles ofscheme members.Besides this application of VaR methods to estimateEarnings-at-Risk and Pension-Fund-at-Risk, otherapplications include: Liquidity-at-Risk — VaR taking account of changesin market liquidity. Cash-flow-at-Risk — VaR analysis applied to a firm’scash flows rather than P&L. Credit-at-Risk —VaR analysis applied to a firm’scredit exposure. Default-Value-at-Risk — VaR analysis applied toestimate a firm’s losses in the event of default.Thus, VaR-type analysis is very flexible and can beapplied to any type of quantifiable risk.12FINANCIAL RISK MANAGEMENT: MARKET RISK TOOLS AND TECHNIQUESEXAMPLE 4: MICROSOFT’S USEOF VaR TO MANAGE ITS FINANCIALRISKSWhere companies have global operationsthat trade across a range of currenciesand interest rate regimes, it is quite likelythat such currency and interest rate risksinteract. Historically, companies havetended to hedge risks independently astransactions occur, but VaR can treat thevarious risks as a portfolio of relatedcomponents that can be managedtogether. Microsoft is one example ofa company that uses VaR to manageaggregate risks in this way. Currency,interest rate, and equity/investmentrisks are hedged in combination to takeadvantage of the effects of diversificationwithin the portfolio. The company thenuses simulation analysis to estimate andreport a VaR figure that shows the potentialloss on the combined risk exposures,assuming a 97.5% confidence limit and a20-day holding period. Microsoft drawsattention to the fact that the VaR amountdoes not necessarily reflect the potentialaccounting losses. Nonetheless, the factthat VaR is used at all indicates active riskmanagement, giving a positive signal to themarket. The VaR can then be compared tooverall reported earnings as a sensitivitymeasure.See Microsoft Investor Report for details.
SCENARIO ANALYSESAnother useful approach to quantifying risk involvesscenario analyses (sometimes also referred to stress tests,sensitivity tes
4 FINANCIAL RISK MANAGEMENT: MARKET RISK TOOLS AND TECHNIQUES RISK MANAGEMENT SYSTEM The core elements of a financial risk management system are: Risk identification — The first stage is to identify the risks to which the organization is exposed. Assessment — The scale of each identified risk is then estimated, using a mix of qualitative and quantitativeFile Size: 317KB
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their risk management challenges around risk regulations, enterprise risk management, risk governance, and risk analysis and modeling. Plochan is a certified Financial Risk Manager with 10 years of experience in risk management in the financial sector. He has assisted various banking and insurance institutions with
The risk management framework at CLP comprises four key elements: Risk ppetite Risk Management Proess Risk overnane Strtre Risk Management iosopy CLP's Risk Management Philosophy . In assessing the consequence of a risk, CLP considers Financial consequences, in addition to non-financial ones, comprising Safety and Health, Environment .
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