MAF202 Lecture Notes - Lecture 10: Interest Rate Risk, Strike Price, Financial Institution
Document Summary
Week 10: an introduction to risk management and derivatives. Risk = the possibility or probability of unexpected outcome that may be higher or lower than expected value. It is the deviation between actual and expected value. Operational risk: are those exposures that may impact on the normal commercial functions of a business. Financial risks = risks that result in unanticipated changes in projected cash flows or the structure and value of balance sheet assets and liabilities. Interest rate risk (adverse movements in current market rates) Liquidity risk (the ability to meet financial demands and commitments) Credit risk (counter party will not repay principal and interest) Capital risk (insufficient capital to expand activities and meet desired gearing ratio) Direct risks = the initial risk event that impacts on the operational or financial position of an organisation. E. g. a change in interest rates and asset value. Consequential risks = risk exposures that eventuate as a result of an initial direct risk event.
