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Presented by B.Sai Kiran (12NA1E0036)

This document discusses various types of risk including business risk, political risk, inflation risk, exchange rate risk, interest rate risk, liquidity risk, maturity risk, credit risk, systematic risk, and unsystematic risk. It provides conceptual definitions of risk as the probability of loss and exposure as the possibility of loss. Several steps in risk management are outlined including identifying risks, analyzing their probability and impact, ranking risks, and developing contingency plans. The conclusion is that risk is dangerous for business but can sometimes lead to success if managed based on experience.

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Belkacem Achour
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38 views15 pages

Presented by B.Sai Kiran (12NA1E0036)

This document discusses various types of risk including business risk, political risk, inflation risk, exchange rate risk, interest rate risk, liquidity risk, maturity risk, credit risk, systematic risk, and unsystematic risk. It provides conceptual definitions of risk as the probability of loss and exposure as the possibility of loss. Several steps in risk management are outlined including identifying risks, analyzing their probability and impact, ranking risks, and developing contingency plans. The conclusion is that risk is dangerous for business but can sometimes lead to success if managed based on experience.

Uploaded by

Belkacem Achour
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Presented by

B.Sai kiran
(12NA1E0036)
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.
 Ina 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
might not
 Conceptual definition of risk
• Risk concerns future happenings
• Risk involves change in mind, opinion, actions, places,
etc.
• Risk involves choice and the uncertainty that choice
entails
 Two characteristics of risk
• Uncertainty – the risk may or may not happen, that is,
there are no 100% risks (those, instead, are called
constraints)
• Loss – the risk becomes a reality and unwanted
consequences or losses occur

4
 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.
SystematicRisk
Unsystematic Risk
Inflation 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
fluctuations.
“Currency risk arises due to uncertainty in
exchange rates”.
Business Risk
As a holder of corporate securities (shares
and debentures), large population is
exposed to the risk of poor partners
performance.

Political Risk

Political risk may be defined as the probability


that a political event will impact adversely on a
firm’s profit
 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
people
• Budget risk – losing budgetary or personnel
commitment
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
Liquidity Risk

1.A temporary inability to convert assets to cash

2.Operational difficulties of various kinds

3.The inability of correspondents to perform settlement


functions

Maturity Risk:

IT IS TOTALLY DEPEND ON MATURITY PERIOD RELATED TO ANY


TRANSACTION:
 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
wrong
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
impact
13
ICONCLUDE 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.

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