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Risk &
Investment
get a detailed overview of the various risks in
the management of a corporation
understand the role of environmental and
strategic factors that could impact the business
or organizational profile
work through hands on workshops to complete
scoring models for credit risk, sensitize cash
flow projections and use other tools of risk
management
discuss and consider what further information
and verification is required to strengthen the
analysis
Understanding Your business
Please state :
1. Your Name and Position in your organization
2. What are the key identified risks
3. What Enterprise Risk Management or other tools you
already use
4. Your expectations
PROGRAM TOPICS
THE INVESTMENT SIDE
Cash Flow projections
Sensitivity Analysis
Defining Risk & Risk Attitudes
Types of Risk impacting Corporations e.g.
Financing risk
Credit risk
Interest rate risk
Global risk
Modelling the environmental risk impacting our financial institution:
Where weve been recently The Global Recession
Using the Inverted Triangle Analysis to score market risk factors on
our loan portfolio and other financing products.
A broad approach to risk management in Financial Services (overview session)
COSO Framework
ATEM Rule
Basel II
Capital Adequacy
CAMELS
MEASURING RISK
Portfolio Risk for Investment Banking
5Cs Credit Risk Individuals
5Cs Credit Risk Business borrowers
ON GOING MEASURES OF RISK IN BUSINESS INVESTMENT
Sensitizing key business factors
Leverage Analysis
RECOGNIZING RED FLAGS
RISK
&
INVESTMENT
Investment is Risky
Investment requires sacrifice of current consumption for
potential future gain.
SACRIFICE is current
RETURNS are:
In the FUTURE
Therefore UNCERTAIN (Risky)
About RISK in Investment
The fact that people are full of greed, fear, or
folly is predictable. The sequence is not
predictable.
Warren Buffett
The major difference between a thing that
might go wrong and a thing that cannot possibly
go wrong is that when a thing that cannot
possibly go wrong goes wrong it usually turns
out to be impossible to get at or repair
Douglas Adams
Current scenarios
Changing course on the
economy would plunge the UK "back into the
abyss", David Cameron has said.
Mr Cameron said: "There are some people who
think we don't have to take all these tough decisions
to deal with our debts. They say that our focus on
deficit reduction is damaging growth, and what we
need to do is to spend more and borrow more.
"It's as if they think there's some magic money tree.
Well, let me tell you a plain truth: there isn't."
It is subject to
TIME VALUE OF MONEY
1. Currency Fluctuations
2. Investment Opportunities
3. Increasing uncertainty with longer time and
planning horizons
4. Liquidity Preference
5. Time cost of money = INTEREST RATES
Everything that can be counted does not necessarily count;
everything that counts cannot necessarily be counted.
Albert Einstein
FOREX RISK
Risk on either payment or potential income in a foreign
currency
HEDGING STRATEGIES:
LEADING
LAGGING
FORWARD CONTRACTS
MONEY MARKET OPERATIONS
MATCHING
NETTING
DERIVATIVES
TIME VALUE OF MONEY
measured using Discount
Rates
COMPUNDING = Value of a cash flow at a specific point of
time in the future
DISCOUNTING = Value today, of a cash flow arising in the
future