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Risk provides the basis for opportunity.
Risk refers to the probability of loss, while
exposure is the possibility of loss.
So; Risk arises as a result of exposure.
In a global market place, there are many
opportunities for risk.
Losses may not be limited to one
geographical or domestic market.
A risk is a potential problem – it might happen and it
Conceptual definition of risk
• Risk concerns future happenings
• Risk involves change in mind, opinion, actions, places,
• Risk involves choice and the uncertainty that choice
Two characteristics of risk
• Uncertainty – the risk may or may not happen, that is,
there are no 100% risks (those, instead, are called
• Loss – the risk becomes a reality and unwanted
consequences or losses occur
Many risk management initiatives such as
credit risk, settlement and payment
system initiatives have been introduced
by or for financial institutions.
Several major international initiatives
have been undertaken to reduce
financial risk and systemic risk.
Inflation risk is that the real return on a security may be less than the
nominal return In case of fixed income securities
Inflation risk is also known as Purchasing power Risk
Exchange rate Risk
Indirect risk involved in foreign exchange
“Currency risk arises due to uncertainty in
As a holder of corporate securities (shares
and debentures), large population is
exposed to the risk of poor partners
Political risk may be defined as the probability
that a political event will impact adversely on a
Sub-categories of Business risks
• Market risk – building an excellent product or
system that no one really wants
• Strategic risk – building a product that no longer fits
into the overall business strategy for the company
• Sales risk – building a product that the sales force
doesn't understand how to sell
• Management risk – losing the support of senior
management due to a change in focus or a change in
• Budget risk – losing budgetary or personnel
Interest Rate Risk
Interest Rate Risk is the risk that the relative value of a security, especially
bond, will worsen due to an interest rate increase.This risk is commonly measured b
the bond's duratio
1.A temporary inability to convert assets to cash
2.Operational difficulties of various kinds
3.The inability of correspondents to perform settlement
IT IS TOTALLY DEPEND ON MATURITY PERIOD RELATED TO ANY
Credit exposure exists within most
organizations, but it is especially
significant major financial institutions.
One of the most fundemental aspect of
credit risk management is the careful
selection of counterparty.
1) Identify possible risks; recognize what can go
2) Analyze each risk to estimate the probability
that it will occur and the impact (i.e.,
damage) that it will do if it does occur
3) Rank the risks by probability and impact
- Impact may be negligible, marginal,
critical, and catastrophic
4) Develop a contingency plan to manage those
risks having high probability and high
I CONCLUDE THAT RISK IS ALWAYS A
DANDEROUS FACTOR IN BUSINESS BUT
AT SOME TIMES BY TAKING RISK LEADS
TO SUCCESS ALSO ALL WOULD HAPPEN
BASING ON EXPERIENCE.