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Market Risks |
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Market risk factors include:
Interest rate risk of both on-balance sheet positions (for example, loan portfolios) and off-balance sheet risks (for example, options, swap positions). Furthermore, when interest rates fluctuate, so too do most financial institutions’ earnings and expenses. The sub-risks within interest rate risks include:
- Re-pricing risk, yield curve risk, and
credit spread risk
- Equity risk associated with specific
companies or portfolio indexes
- Foreign exchange risk resulting from
changes in the relative prices of
different currencies
Hedging using derivatives – reducing interest rate, foreign exchange and equity risk by purchasing financial contracts such as saps, forwards and options that reduce the transaction’s exposure to short-term market fluctuations Asset – liability management techniques that focus on long term interest rates and funding risks associated with medium and long term assets and liabilities on the firm’s balance sheet.
The use of regulatory capital and economic capital to cover market risk exposures Boundary systems to develop a series of limits and sanctions regarding internal trading.
These limits can be used to constrain the extent of positions, concentration of risks, extent of loss and counter party exposures (such prudential norms, exposure norms etc). Diagnostic control systems using measures such as Value-at-Risk, scenario analysis and stress testing.
Haselfrë works with the C-level executives of the Companies so as to better understand the strategies and identify the ‘Market Risks’ and could include:
- Drawing up the strategy maps for
the company.
- Craft the Sustainable Balanced
Scorecard in line with strategy maps.
- Identify ‘Market risks’ that could
arise due to the new strategies or
introduction of new products in
new territories and markets
that are complex.
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