Tài chính doanh nghiệp - Topic 1: Introduction: risk management

1A Course in Risk ManagementInstructor: Lou Gattis Topic #1:Introduction: Risk ManagementNote: bring a financial calculator to each classObjective: understand the process of financial risk management (IMM) at financial and non-financial firms 2What Do Financial Risk Managers Do? (IMM Framework)Identify risks that affect firm’s viabilityMarket Risks: Equities, FX, Interest Rates, Commodity pricesCredit Risks: Counterparty, Bond Default, Loan DefaultOperational Risks: Legal, Fraud, Physical, Country, etc.Measure exposure to identified risksPositions: Market Value, Notional Amount, Book/Face Value, Impacts: Earnings, Cash Flow, or Value LossDeterministic: Stress Tests, Scenario Analysis, DV01Stochastic: VaR, CaR, EaRMitigate risksReduce Risk: Unwind, take on offsetting positions (Hedge)Reduce Cost of Risk: Raise Capital / De-lever, Contingent Financing (lines of credit)Accept Risk: Immateriality, Un-hedgable, UnavoidableQuestionWho works in the area of Corporate Finance?34Risk Management Organizations interact with all corporate functional departmentsVP of PlanningChief Executive OfficerTypical Non-Financial FirmBoard of DirectorsStockholdersChief Financial OfficerChief Administrative OfficeDepartmentsDepartmentsOperating DivisionsOperating DivisionsOperating DivisionsControllerTreasurerChief Risk Officer (CRO)Market RiskCredit RiskOperational Risk5Risk management is integral in each activity of corporate financial managementFind Value Creating Real Investments (NPV>0)E.g., Plants, New Products, Projects, Acquisitions Ensure cash flow estimates and/or discount rate reflects investment riskFinance InvestmentsEquity, DebtManage leverage and interest rate riskImplement, Manage, Report on InvestmentsIdentify, measure, and mitigate exposure to market and credit risk to protect earnings, capital, and/or cashflowsCommunicate risks to stakeholders: Executives, Board, Shareholders, EmployeesQuestionWho works in the area of Investment Management?67Risk management is integral in each activity of Investment ManagementFind Value Creating Financial InvestmentsE.g., Equities, Bonds, DerivativesEnsure cash flow estimates and/or discount rate reflects investment riskFinance InvestmentsEquity, DebtManage leverage and interest rate riskImplement, Manage, Report on InvestmentsIdentify, measure, and mitigate exposure to market and credit risk to protect earnings, capital, and/or cashflowsCommunicate risks to stakeholders: Executives, Board, Shareholders, Employees8Chief Financial OfficerChief Investment OfficerBack OfficeMiddle OfficeFront OfficeHead Trader EquityHead Trader Fixed IncomeHead Trader Foreign ExchangeRisk ManagementAccounting and ReportingChief Executive OfficerMarket RiskCredit RiskOperational RiskTypical Financial FirmBoard of DirectorsStockholdersRisk Management Organizations interact with all investment management departmentsQuestionWho works in Banking?910Risk management is integral in each activity of BankingFind Value Creating Banking InvestmentsE.g., Mortgages, Business Loans, HELOCsEnsure interest rates reflect risk of investmentFinance InvestmentsEquity, Debt, DepositsManage leverage and interest rate riskImplement, Manage, Report on InvestmentsIdentify, measure, and mitigate exposure to market and credit risk to protect earnings, capital, and/or cashflowsCommunicate risks to stakeholders: Executives, Board, Shareholders, Employees