Risk management and risks associated with treasury

Question 1

What is risk? 3 points

Answer 1

Must be quantifiable
Dispersion of possible outcomes
Can be downside or upside

Question 2

5 stages of risk man cycle

Answer 2

1. Identify Risk
2. Assess and Analyse risks
3. Plan action
4. Implement
5. MEasure, control and monitor

Question 3

Risk appetite

Answer 3

Seeking or averse

Question 4

4 steps to ID risk

Answer 4

Brainstorm, workshops, checkups, benchmarking

Understand KPIs -> key risks stop you achieving strategy

Question 5

6 Tools to evaluate risk

Answer 5

Stats (prob, std dev, EV)
Sensititivty analysis
Scenario planning (what if)
Simulation (monte carlo)
Value at risk (confidence level)
Max loss (cumulative)

Question 6

Axes to map risk

Answer 6

Plot freq and severity // low freq and severity accept -> draw the “risk management line”

Question 7

4 responses to risk

Answer 7

1. Accept (factoring, outsource)
2. Transfer (insure or securitise)
3. Control (operations and risk management)
4. Abandon

Question 8

Monitoring and revision of risk 3 elements

Answer 8

Ensure it is dynamic and you review
Have risk owners
Feed into a system

Question 9

The 9 most common risks

Answer 9

1. Commercial
2. Systemic
3. Commodity
4. Settlement
5. Liquidity
6. COunterparty/credit risk
7. Country risk
8. FX risk
9. Interest rate risk
   5-9 most imp for treasurer

Question 10

4 techniques of country risk analysis

Answer 10

1. checklist
2. delphi (collect expert opinion)
3. Quantittative analysis
4. Inspection visits

Question 11

3 types of FX risk

Answer 11

Economic/strategic
Translation
Transaction

Question 12

What is basis risk

Answer 12

Level of interest rate change

Question 13

Hedging (3 points)

Answer 13

1. only about risk mitigation
2. never about profit/return
3. reduce range of possible outcomes

Question 14

Internal hedging

Answer 14

operational

Question 15

External

Answer 15

financial

using instruments

Question 16

Speculators

Answer 16

Take risks in seek of gaining

Ts cannot speculate