Financial Risk Management

This course covers the fundamentals of financial risk management, with a focus on practical implementation and application. It will focus on variety of risks that financial managers face and the tools available for managing them. Particularly, we shall focus on credit risk, interest rate, foreign exchange risk, and operational risk.

Extreme market events are a key risk management concern, especially in the aftermath of the global financial crisis and the many unresolved issues it presented. We will be investigating some of the biggest financial shocks through case studies and solve these cases by applying the concepts acquired in this course.

The course seeks to explain what risk and risk management means in a corporate setting, common methods for managing and measuring risk and developing a risk management strategy.

Students attending this course are expected to have a basic knowledge of finance and accounting. This course is aimed at those who want to understand the essentials of risk management. Please note that this course does not serve as a preparation for the FRM exams.

After finishing this course, students will be able to:

• Distinguish between risk, uncertainty, and randomness
• Distinguish between risk management and risk measurement
• Understand the importance of risk governance
• Describe risk budgeting and understand its role in risk governance
• Realize the importance of managing people, processes, technology, and organizational structure for effective risk management
• Recognize the difference between idiosyncratic and systematic risks
• Define, classify, and distinguish between financial risks
• Identify and understand the principles of credit, foreign exchange, interest rate, and operational risk
• Recognize probability, standard deviation, Value-at-Risk (VaR), and scenario analysis/stress testing as risk measurement metrics
• Distinguish between risk prevention and avoidance
• Define and apply the concepts of self-insurance, risk shifting, and risk transfer
• Realize insurance as a way to transfer risks
• Recognize outsourcing and derivatives as two ways of shifting risk.