8/9/2019 Introduction to Risk

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Presented by : Abhishek Shrivastava

 Anirban Roy Chaudhari Anusha

 Ashwini Ukey 

Devender Kumar Patel

Kaushar Alam

Bhawana Joshi

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Introduction

y Risk is virtually anything that threatens or limits theability of a community or nonprofit organisation toachieve its mission.

y It can be unexpected and unpredictable events such asdestruction of a building, the wiping of all yourcomputer files, loss of funds through theft or an injury to a member or visitor who trips on a slippery floor and

decides to sue. Any of these or a million other thingscan happen, and if they do they have the potential todamage your organization, cost you money, or in a

 worst case scenario, cause your organisation to close.

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Types of Risk

Risk

Creditrisk/Counterparty 

Risk

Market Risk

Operational Risk

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Credit Risk/Counterparty Risky Counterparty risk is the risk to each party of a contract

that the other will not live up to its contractual

obligation.y In most Financial contracts, this risk is known as

default Risk.

y In case of a pure lending transaction, this risk takes

the form of credit risk.

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Market Risky Market risk is the risk of fluctuations in portfolio value

because of the movement in such variables.

PriceRisk

ForexRisk

Country Risk

Liquidit

 y Risk

Technology Risk

InterestRate Risk

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Operational Risk An operational risk is, as the name suggests, a riskarising from execution of a company's business

functions. It is a very broad concept which focuses onthe risks arising from the people, systems andprocesses through which a company operates. It alsoincludes other categories such as fraud risks, legalrisks, physical or environmental risks.

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Risk and Risk Managementy Risk is a synonymous with uncertainty. Risk arises because

the future is unknown.

Risk Managementy Risk management is a process of thinking systematically 

about all possible risks, problems or disasters before they happen and setting up procedures that will avoid the risk,

or minimize its impact, or cope with its impact. It isbasically setting up a process where you can identify therisk and set up a strategy to control or deal with it.

y Derivative contracts can be used to mange risk. Eg.Hedging , Insurance etc

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Risk Management process

Identify risk Evaluate RiskSelect risk

ManagementTechnique

Implementand ReviewDecisions

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3 Ms of Risk Managementy Risk Measurement

y Risk Monitoring

y Risk Management

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How is Risk Measured

- Risk Measurementy Random Variables

y Probability distribution

y Variance

Risk = Impact x Probability

* higher the variance , higher is the risk

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ExampleThe heights (at the shoulders) are: 600mm, 470mm,170mm, 430mm and 300mm.

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Mean=394

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Each dogs diff erence from mean

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Standard Deviation (147mm)

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Risk monitoringy Risk monitoring is the major element of risk management

Monitoring risk means to review it and update itcontinuously.

y Identify new risks as soon as possible

y Decide where and how to handle that risk

yLook for other risks that might be reduced or eliminatedand no longer need coverage

y Check operating volumes - they change so that coveragelevels need to change...

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Risk Managementy The final step in the process is actually managing the

risk. This simply means management decision-making when called for, based on the information that is

available.y Aspects of managing risk effectively are:

y proper analytical tools must be used

y proper risk monitoring capabilities

y  A risk-oriented mind set must exist in all employees.y  A willingness to be proactive regarding risk

management, treating risk management as a businesspartner, not simply part of a compliance function

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ConclusionRisk management is the identification, assessment,and prioritization of risks followed by coordinated and

economical application of resources to minimize,monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities.