Risk Management Flashcards
What are the 3 main types of financial risk?
Foreign exchange risk
Interest rate risk
Liquidity risk
What does an enterprise wide approach to risk include?
Commodity risk
Insurance risk
Pensions risk
Operational risk
Credit risk
What are the key risk management tasks?
5 stages of risk management framework
Leading enterprise wide risk management
Optimal capital structure
Setting risk management strategy in line with Treasury policy
What are the five stages of a risk management framework?
Identification
Assessment
Evaluation
Management
Reporting
What is a cost centre?
Cost centre Treasury’s are associated with a risk averse approach. They will likely hedge everything to reduce the effect of financial market volatility on liquidity. And will opt for risk averse, safe investment opportunities.
What is a profit centre?
- Risk tolerant structural approach.
- Rare and only seem in commodity companies.
- Often take speculative positions.
What is a cost savings approach?
- A cost saving Treasury approach enables treasury to hedge selectively in order to add value.
- Scope to make judgement on the need to hedge a risk.
What are the 3 theories that seek to explain why investment yields may differ at different maturities?
- Liquidity preference
- Market expectations
- Market segmentation
What are the 4 operational responses to risk?
Avoid
Accept and reduce
Accept and retain
Accept and transfer
What is risk appetite?
The residual amount of risk remaining after application of risk mitigation techniques, within which an organisation aims to operate.
Is which ways can risk appetite be measured?
- a maximum gearing/leveraging ratio (the level of borrowings compared to shareholders funds).
- maximum variation in earnings per share.
- a minimum interest cover ratio (the number of times earnings or cash flow , exceeds interest expense)
