CH16-Risk Management

Question 1

4 factors company leadership should address to manage risk

Answer 1

1. culture
2. internal controls
3. technology
4. guidelines from BOD

Question 2

4 things that help prevent managerial malfeasance

Answer 2

1. educated risk taking atmosphere
2. individual responsibility culture
3. admit information gaps
4. independent BOD

Question 3

Operational risk is defined as

Answer 3

the risk of direct and indirect losses resulting either from external events that impact an organization’s operations, or inadequate and failed internal processes, people and systems.

Question 4

What is it called when treasury professionals work together with others in the organization to manage not only financial risk as a component of market risk, but also credit and liquidity risks, operational risks, legal and regulatory compliance risks, and business, strategic and reputation risks?

Answer 4

Enterprise risk management (ERM)

Question 5

Define Reputation Risk

Answer 5

risk that customers, suppliers, investors, regulators decide you have a bad reputation and don’t want to do business with you. Especially important for FIs

-also relates to how companies react to unexpected events

Question 6

VaR (5%) =

Answer 6

VaR (5%) = Portfolio Value * 1.65 * Standard Deviation