Scribd
Upload
176 views41 pages

(Slideshare Downloader La) 631fe9ca8ef72

Uploaded by

Khaled bin amir
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF or read online on Scribd
176 views41 pages

(Slideshare Downloader La) 631fe9ca8ef72

Uploaded by

Khaled bin amir
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF or read online on Scribd
You are on page 1/ 41
Fundamentals of Market Risk Management By DR. EMMANUEL MOORE ABOLO 08021003297 aboloemma@gmail.com mail@drabolomoore.com OUTLINE Types of Financial Risk Concept of Trading and Banking Book IFRS Categorization of Banks Assets and Liabilities Trading Book & Banking Book Introduction to Risks in Trading and Banking Sources of Risk in Trading & Banking Book Classification of Market Risk Market Risk Sources of Market Risk Interest Rate Risk in the Banking Book Introduction to Instruments Instruments Classification Market Risk Framework Best Practice in Market Risk Management Market Risk Framework Diagram Risk Identification Matrix Market Risk Measurement Framework Market Risk Measurement Techniques OUTLINE Setting Limits = Setting Up Limits * Risk Monitoring & Control, Risk Reporting = Whatis Basel Says i ‘Structure of the New Basel Capital Accord * Pillar 1: Minimum Capital Requirements = Capital Computation Approaches * Rethinking the Market Risk Process + Establish Top Management Oversight = Deploy Best Practices Framework * Adopt appropriate Organisation Structure + Invest in Good Technology * Use Hedging Techniques Judiciously * Ensure Robust Market to Market * Establish Good Operational Processes * — Measure, Monitor & Manage - Value at Risk >> Summary Types of financial risk IFRS CATEGORIZATION OF BANKS ASSETS AND LIABILITIES >» Held to Maturity (HTM) + Financial Instruments held with the intention of holding til maturity are classified under this category. >» Held for Trading (HFT) + Financial instruments acquired or incurred for the purpose of sale or repurchase in the near term. >» Available for Sale (AFS) * Financial Instruments which cannot be classified as HFT or HTM are classified under this category. TRADING BOOK & BANKING BOOK What is Trading Book? Positions taken with the intent of benefitting from short term price movement in market prices, and hence with an intent of trading in short term, are assigned to Trading book. What is Banking Book? * Positions that are not included in the Trading Book are part of the Banking Book. Sources of Risks in Trading & Banking Book Classification of Market Risk aan on a on siti | Market Risk Market Risk Types Interest Rate Risk Equity Risk Foreign Exchange Risk Commodity Risk 44 Instru Derivatives Non-Derivatives Derivatives Non-Derivatives Derivatives Non-Derivatives Derivatives Non-Derivatives eat Futures/Forwards/Swaps/Option Debt Securities Futures/Forwards/Swaps/Option on Individual Equity/index Cash Position in Equity Futures/Forwards/Swaps/Option in Foreign Exchange Cash Positions in Forex/Gold Futures/Forwards/Swaps/Option in Commodities Cash positions in commodities Sources of Market Risk Market Risk primarily arises on account of Trading activities Interest Rate Risk in the Banking Book Interest Rate Risk in the Banking Book + Interest Rate Risk in the Banking book is defined as the current or prospective risk to both the Earnings and Capital of the Bank arising out of adverse movements in interest rates: Instruments Classification Ronee amc anon cys Te Sesto} Ce 6 Best Practices in Market Risk Management leasure, Monitor & Manage — Value at Risk Stress Tests Market Risk Framework >>>>Not an end in itself, but a key instrument to meet the objective Risk Identification Matrix SC ee ANT Cn ela ac OC a Cr Cee Ci ane ae ao cae Currency Forward Y v x v x x q y Y Gross Curreney i , x v x x y y Y Swap Forvign Currency Y v i V x Y y 1 Option Foreign Currency q V i x x y y y {Non - Government) Caltable Coupon Bond Forign Currency \ \ x v x x y y 1 (Non = Government) Coupon Bond Fixed Coupon Y 4 v x x x a x x x (Government) Bond Treasury Bill y y 1 x oe x x x x x Commercial Paper . y x x x x y v 1 20 Market Risk Measurement Techniques High Scope of cakculation Comple of capital charge ity of includes the following Instrum categories: ents Foreign Exchange: Gold, Commodities Equities Sinterest rate instruments Low Evolution of Risk Measurement techniques 24 Setting Up Limits Exposure Limit (EL) reflects celing on a bank’s exposure across banking and trading books on any dimension such as industry, geography, sector, counterparty etc. to avoid risk of ‘concentration Risk Limits are limits set based on the risk measure for the particular exposure, Stop loss limits ere defined as limits set on losses in order to cut losses incurred in a security ‘or portfolio. 24 Risk Monitoring, Control & Reporting Risk Management System Lines of Reporting Responsibility Allocation Own Risk & Solvency Assessment Limit Setting & Risk Assessment Internal Audit Function Regulatory Reporting Internal Reporting What Basel says? »> Is it a fool proof system which will ensure NO LOSSES will occur? »> What if LOSSES still occur? ® Maintain Capital ™ Basel Standards prescribe how to Measure how much capital to keep 26 Structure of the New Basel Capital Accord Pillar 1 Pillar 2 Pillar 3 Minimum Capital.

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy