Chapter 4 Operational, Financial, And Strategic Ris Flashcards
Operational risk is an integral part of each organizations functions. Successful organizations define understand and manage their operational risk how is this done
Organizations must understand how operational risk has evolved to successfully manage operational risk, the organization must have a framework that classifies it. A typical framework would include these risk category of people, process, systems, external events
What is root cause
The event or circumstance that directly leads to an occurrence
Key risk indicators in bracket KRI]
A financial or non-financial metric used to help define and measure potential losses
Exposure indicator is
A metric used to addenda fire risk inherent to an organizations operations
Loss ratio is
A ratio that measures losses and loss adjustment expenses against earned premium and that reflects the percentage of premiums being consumed by losses
Control indicator is
A metric used to identify an organizations management of risk
Risk optimization is
I state where by risk and return our balance so that a maximum return is achieved for the level of risk excepted by an organization
What is hedging
A financial transaction in which one as that is held to offset the risk associated with another asset
Systematic risk
Risk that is common to all securities of the same general class and that therefore cannot be eliminated by diversification
Interest rate risk is
The risk that A security’s future value will decline because of changes in the interest rates
Swap is
An agreement between two organizations to exchange payments based on changes in the value of an asset, yield, or specific period
Cash matching
The process of matching an investment Maturity value with the amount of expected loss payments
Zero coupon bond is
A corporate bond that does not pay periodic interest income
What is reinvestment risk
The risk of at the rate at which periodic interest payments can be in reinvested over the life of the investment will be unfavourable
Commodity price risk
The risk associated with a change in the prices of commodities that are necessary to an organizations operations
Cash flow
Cash inflows minus cash outflows
Commodity futures contract
A contract either to make or to except delivery of a specified quantity of a commodity on a given date
Equity price risk
The risk the changes in the price of a stock or another security will increase or decrease
Call option
An option to buy a set amount of the underline security at any time within a specified
Put option
An option giving the holder the right to sell a set amount of the underlying security at anytime within a specified period
Price risk
The potential for a change in revenue or cost because of an increase or decrease in the price of a product or an input
Earnings at risk
The maximum expected loss of earnings within a specific degree of confidence
Conditional value at risk
A model to determine the likelihood of a loss given that the losses greater than the E or equal to the VaR
Monte Carlo simulation
A computerized statistical model that simulates the effects of various types of uncertainty
