Risk Management: Mitigating Credit Risk and Operational Risk

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Mitigating Credit Risk and Operational Risk

Résumé du document

You will be examining three organizations. Each organization is slightly different. Your task is to determine several strategies to mitigate the credit or operational risk in each organization. For each firm, describe the recommended strategy and discuss the position of the firm.

Extraits

[...] Because of default risk, sovereign bonds tend to be offered at a discount. Brady bonds, which are issued by governments in developing countries, are a popular example of sovereign debt securities[4]. The fact is that the bank only operates on a regional scale, so that it has no experience internationally to do business with foreign countries. Thus, the bank may have not the right employees with the necessary skills to trade foreign currencies abroad. It would be then judicious to hire financial people that are used to international business within banking divisions. [...]

[...] Mitigating Credit Risk and Operational Risk You will be examining three organizations. Each organization is slightly different. Your task is to determine several strategies to mitigate the credit or operational risk in each organization. For each firm, describe the recommended strategy and discuss the position of the firm. TABLE OF CONTENTS Firm # Firm 1 is a large multinational organization with operations in several countries. The company's industry is currently experiencing an economic downturn. While the firm is currently in good shape, it wishes to avoid bad news as it is concerned about further economic downturns. [...]

[...] Thus, it turns out that this bank has operational issues and should better manage its operational risks. According to investopedia.com, an operational risk can be defined as form of risk that summarizes the risks a company or firm undertakes when it attempts to operate within a given field or industry. Operational risk is the risk that is not inherent in financial, systematic or market-wide risk. It is the risk remaining after determining financing and systematic risk, and includes risks resulting from breakdowns in internal procedures, people and systems. [...]

[...] Moreover, the bank can implement a credit risk limit that aims at determining the maximum amount of money that a bank or other money lender will lend to a money borrower. As a conclusion, the bank definitely has to set up a credit risk modeling using computing data. Firm 3 Firm 3 is a large commercial bank. The bank has been experiencing high error rates in its processing of trades in bonds and currencies. This high failure rate is causing it to lose some clients due to the high cost of fixing errors. How would you go about assessing the situation and recommending improvements to the settlement process? [...]

[...] Senior management recently decided to expand its business in other countries. There are two general strategies driving this decision. First, the bank plans to expand the investment portfolio and buy sovereign bonds. These bonds are expected to be from emerging market countries and denominated in the currency of the issuer. Second, the bank will also make loans to companies in other countries that may or may not be denominated in other currencies. The bank has traded foreign currency for its clients, but always on an agency basis. [...]