Identify a Current Issue in Terms of Either the Challenges Facing the Financial Risk Management Professional or Some of the Risks Faced Currently by Organizations
Autor: Tsebo Mohale • November 6, 2016 • Research Paper • 2,515 Words (11 Pages) • 1,254 Views
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RISK MANAGEMENT
Name of Student: T.J Mohale (g16m4636)
Degree: BCom Honours Financial Management
Department: Department of Management
Task: Assignment
Lecture: Chane Grobler
Task
Identify a current issue in terms of either the challenges facing the Financial Risk Management professional or some of the risks faced currently by organizations
Table of contents
No. | Item | Page number |
1 | Introduction | 1 |
2 | Impact on the risk management | 1 – 2 |
3 | Credit Risk Management | 3 – 5 |
4 | Recommendations | 5 |
5 | Conclusion | 5 |
6 | References | 6 |
Introduction
According to Gregoriou and Hoppe (2008), bank loan is a debt, which entails the redistribution of the financial assets between the lender and the borrower. Banks are vital to the health of a nation‘s economy; monies collected by the bank from the community are given back to the community in the form of loans to buy houses and cars, to start and expand businesses, to pay children‘s school fees and for other numerous purposes. The bank loan is commonly referred to the borrower who got an amount of money from the lender, and need to pay back, known as the principal. In addition, the banks normally charge a fee from the borrower, which is the interest on the debt. The risk associated with loans is credit risk, which is defined by Tomasz and Marek, 2004, as the risk associated with any kind of credit-linked events, such as changes in the credit quality (including downgrades or upgrades in credit rating ratings), variations of credit spreads, and the default event. The spread risk is thus another component of credit risk. Van and Imai,2003, also attest that, banks face various risks, that are, credit risk, market risk and operational risk. Market risk which is defined as the risk of losses in on and off-balance sheet positions arising from movements in market prices. The capital treatment for market risk addresses the interest rate risk and equity risk pertaining to financial instruments, and the foreign exchange risk in the trading and banking books. Operational risk is defined as the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events. A firm wide risk management framework is an amalgam of strategy, process, infrastructure and environment, which helps such institutions, make intelligent risk taking decisions prior to committing limited resources and then helps to monitor the outcome of these decisions (Altman & Sabato, 2005).
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