Risk Identification And Classification

Question 1

Market risk

Answer 1

Defn: risk relation to changes in investment market values or other features correlated to the investment market

Question 2

Credit risk

Answer 2

Defn: risk of failure of third party to meet their obligation

Question 3

Liquidity risk - individual/company

Answer 3

Risk that individual or company though solvent do jot have enough available sufficient financial resources to enable it ro meet obligations

Question 4

Liquidity risk - financial markets

Answer 4

Defn:
*How quickly assets can be converted into cash at predictable price
*liquidity risk arises whe the market does not have the capacity to handl the volume of transactedassetst without a potential adverse price impact

Question 5

Liquidity vs Marketability

Answer 5

Liquidity: measure of how quick asset can be converted to cash at predictable price

Marketability: how easy is it to buy and seel asset

Question 6

Business risk

Answer 6

Defn: risk specific to business undertaken (financial)

1. Uw
   *inadequate uw standards
   *take up risk at wrong price
   *take up bad risk
2. Insurance
   *more claims than expected
3. Financing
   *investing in project that fails to be a success
   *new business is not selling as expected
4. Exposure
   *too much exposure to particular events

Question 7

Operational risk

Answer 7

Defn: risk of loss resulting from inadequate or failed internal processes, people, systems/ external events

PR ASDF
1. inadequate failed internal process, people systems
2. inappropriate actions
3. inappropriate advise
4. administrative complexity
5. failure of systems
6. data errors
6. fraud
7. Inadequate risk control
*conduct risk
*dominance risk
*third party risk
*failure to recover from external risks

Question 8

External risk

Answer 8

Defn: non- financial event that negatively impacts operations of company

GTWN

Failure to arrange mitigation for such -> operational

*systematic

Question 9

Climate risk

Answer 9

1. Physical - first order effects of environmental change
   *pollution
   *land use
   *green house
2. Liability insurance
   *injured parties seeking compensation for impacts on climate
   *can be first order or second order
   *latent claims
   –long tailed
   –delays
3. Transition
   *economic, political and marketchanges as a result to mitigate climate change
   *consumer pref (green)
   * Reduce fossil fuel consumption