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5/15/2017 FinancialriskmanagementWikipedia

Financialriskmanagement
FromWikipedia,thefreeencyclopedia

Financialriskmanagementisthepracticeofeconomicvalueinafirmbyusingfinancialinstrumentstomanageexposuretorisk:
Operationalrisk,creditriskandmarketrisk,Foreignexchangerisk,Shaperisk,Volatilityrisk,Liquidityrisk,Inflationrisk,Businessrisk,
Legalrisk,Reputationalrisk,Sectorrisketc.Similartogeneralriskmanagement,financialriskmanagementrequiresidentifyingitssources,
measuringit,andplanstoaddressthem.[1]

Financialriskmanagementcanbequalitativeandquantitative.Asaspecializationofriskmanagement,financialriskmanagementfocuses
onwhenandhowtohedgeusingfinancialinstrumentstomanagecostlyexposurestorisk.[2]

Inthebankingsectorworldwide,theBaselAccordsaregenerallyadoptedbyinternationallyactivebanksfortracking,reportingand
exposingoperational,creditandmarketrisks.[3][4]

Contents
1 Usesoffinancialriskmanagement
2 FinancialRiskManager
3 Seealso
4 Bibliography
5 References
6 Externallinks

Usesoffinancialriskmanagement
Financetheory(i.e.,financialeconomics)prescribesthatafirmshouldtakeonaprojectwhenitincreasesshareholdervalue.Financetheory
alsoshowsthatfirmmanagerscannotcreatevalueforshareholders,alsocalleditsinvestors,bytakingonprojectsthatshareholderscoulddo
forthemselvesatthesamecost.[5]

Whenappliedtofinancialriskmanagement,thisimpliesthatfirmmanagersshouldnothedgerisksthatinvestorscanhedgeforthemselves
atthesamecost.Thisnotionwascapturedbythesocalled"hedgingirrelevanceproposition":[6]Inaperfectmarket,thefirmcannotcreate
valuebyhedgingariskwhenthepriceofbearingthatriskwithinthefirmisthesameasthepriceofbearingitoutsideofthefirm.In
practice,financialmarketsarenotlikelytobeperfectmarkets.[7][8][9][10]

Thissuggeststhatfirmmanagerslikelyhavemanyopportunitiestocreatevalueforshareholdersusingfinancialriskmanagement,wherein
theyhavetodeterminewhichrisksarecheaperforthefirmtomanagethantheshareholders.Marketrisksthatresultinuniquerisksforthe
firmarecommonlythebestcandidatesforfinancialriskmanagement.[11]

Theconceptsoffinancialriskmanagementchangedramaticallyintheinternationalrealm.MultinationalCorporationsarefacedwithmany
differentobstaclesinovercomingthesechallenges.Therehasbeensomeresearchontherisksfirmsmustconsiderwhenoperatinginmany
countries,suchasthethreekindsofforeignexchangeexposureforvariousfuturetimehorizons:transactionsexposure,[12]accounting
exposure,[13]andeconomicexposure.[14]

FinancialRiskManager
FRM(CertifiedFinancialRiskManagerProgram)isaninternationalprofessionalcertificationofferedbyGARP(TheGlobal
AssociationofRiskProfessionals).GARPistheonlyrecognizedmembershipassociationforprofessionalriskmanagers.[15][16][17][18]
GARPisanotforprofitorganizationandaimsatcreatingaculturalenvironmentofriskawarenessandmanagementateveryorganizational
level.[15][16][19][17][18][20]ThecorporateheadquartersofGARPislocatedinJerseyCity,NewJerseywitharegionalofficeinLondon,
England.GARPenablestheriskcommunitytomakebetterinformedriskdecisionsthroughcreatingacultureofriskawareness.[15]
[16][21][17][18]

Therearehalfamillionmembersacross195countriesoftheGARP.Centralbanks,commercialbanks,investmentbanks,corporations,asset
managementfirms,academicinstitutionsandgovernmentagenciesemploythemembersofGARP.[15][22]

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Top10globalbanksemployingFRMsareBankofAmerica,BankofChina,ICBC,AgriculturalBankofChina,HSBC,WellsFargo,
Citigroup,BancoSantander,JPMorganChase,ChinaConstructionBank.
Top80companiesemployingFRMsareGoldmanSachs,KPMG,Deloitte,PIMCO,JPMorgan,BlackRock,MorganStanley,Credit
Suisse,BridgewaterAssociates,ManGroup,Barclays,ING,AIGetc.[16][23][24][25][26][27]

Thecurriculumisupdatedannuallybyagroupofdistinguishedriskprofessionalsemployedinternationallyatnearlyeverymajorbank,asset
managementfirm,hedgefund,consultingfirm,andregulatorintheworld.[28]

FRMjoinsanetworkofprofessionalsinmorethan190countriesandterritoriesworldwide.[28]

FRMExamcurriculum[29][28]

TheFRMExamPartIcoversthetoolsusedtoassessfinancialrisk:FoundationsofRiskManagement,QuantitativeAnalysis,
FinancialMarketsandProducts,ValuationandRiskModels.

TheFRMExamPartIIfocusesontheapplicationofthetoolsacquiredintheFRMExamPartIthroughadeeperexplorationof:
MarketRiskMeasurementandManagement,CreditRiskMeasurementandManagement,OperationalandIntegratedRisk
Management,RiskManagementandInvestmentManagement,CurrentIssuesinFinancialMarkets.

SuccessfulcandidatestakeanaverageoftwoyearstoearntheirFRMCertification.[30]

GARPrecentlycompletedaFinancialRiskManager(FRM)JobTaskAnalysistoidentifytheworkperformedbyfinancialrisk
professionalsandtheknowledgeandskillsrequiredtoeffectivelyperformthesetasks.Theirfindingsindicateaneedforrisk
managerstonotonlyhavethetraditionalquantitativeandtechnicalskillsassociatedwithriskmanagementbutalsotheabilityto
effectivelyinterpretandcommunicatetheirfindingstostakeholders.[31][32]

Seealso

Discussion Institutions

Assetliabilitymanagement AmericanRiskandInsuranceAssociation
cashmanagement AssociationofInsuranceandRiskManagersinIndustryandCommerce
Cashflowhedge GlobalAssociationofRiskProfessionals
Corporategovernance InstituteofRiskManagement
Creditrisk ProfessionalRiskManagers'InternationalAssociation
Default(finance) RiskandInsuranceManagementSociety
Enterpriseriskmanagement
Financialrisk Certifications
Financialengineering
Foreignexchangehedge CertifiedRiskAnalyst(CRA)
Interestraterisk CertifiedRiskManager(CRM)
Insurance CharteredEnterpriseRiskAnalyst(CERASocietyofActuariescredential)
Investmentrisk FinancialRiskManager(FRM)
Liquidityrisk CharteredEnterpriseRiskActuary(CERAInstituteandFacultyofActuariescredential)
Marketrisk InternationalDiplomainRiskManagement(MIRMdesignationERMfocused)
Operationalrisk ProfessionalRiskManager(PRM)
Riskadjustedreturnoncapital
Riskmodeling
Riskpool
Settlementrisk
Treasurymanagement
Valueatrisk
Volatilityrisk

Bibliography
Crockford,Neil(1986).AnIntroductiontoRiskManagement(2nded.).WoodheadFaulkner.ISBN0859413322.
Charles,Tapiero(2004).RiskandFinancialManagement:MathematicalandComputationalMethods.JohnWiley&Son.ISBN0
470849088.
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5/15/2017 FinancialriskmanagementWikipedia
Conti,Cesare&Mauri,Arnaldo(2008)."CorporateFinancialRiskManagement:GovernanceandDisclosurepostIFRS7",Icfai
JournalofFinancialRiskManagement,ISSN0972916X,Vol.V,n.2,pp.2027.
Lam,James(2003).EnterpriseRiskManagement:FromIncentivestoControls.JohnWiley.ISBN9780471430001.
McNeil,AlexanderJ.Frey,RdigerEmbrechts,Paul(2005),QuantitativeRiskManagement.Concepts,TechniquesandTools,
PrincetonSeriesinFinance,Princeton,NJ:PrincetonUniversityPress,ISBN0691122555,MR2175089,Zbl1089.91037
vanDeventerDonaldR.KenjiImaiMarkMesler(2004).AdvancedFinancialRiskManagement:ToolsandTechniquesfor
IntegratedCreditRiskandInterestRateRiskManagement.JohnWiley.ISBN9780470821268.

References
1.PeterF.Christoffersen(22November2011).ElementsofFinancialRiskManagement.AcademicPress.ISBN9780123744487.
2.AllanM.Malz(13September2011).FinancialRiskManagement:Models,History,andInstitutions.JohnWiley&Sons.ISBN9781118022917.
3.VanDeventer,DonaldR.,andKenjiImai.CreditriskmodelsandtheBaselAccords.Singapore:JohnWiley&Sons(Asia),2003.
4.Drumond,Ines."Bankcapitalrequirements,businesscyclefluctuationsandtheBaselAccords:asynthesis."JournalofEconomicSurveys23.5
(2009):798830.
5.EMMANUELATTAHKUMAH.COSTOFCAPITAL(AFINANCIALTOOLTOCREATEANDMAXIMIZESHAREHOLDERVALUE).
Lulu.com.pp.39.ISBN9781304260451.
6.KRISHNAMURTICHANDRASEKHARKrishnamurti&Viswanath(eds.)"VishwanathS.R.AdvancedCorporateFinance.PHILearningPvt.
Ltd.pp.178.ISBN9788120336117.
7.JohnJ.Hampton(1982).ModernFinancialTheory:PerfectandImperfectMarkets.RestonPublishingCompany.ISBN9780835945530.
8.ZahirulHoque(2005).HandbookofCostandManagementAccounting.SpiramusPressLtd.pp.201.ISBN9781904905011.
9.KirtC.Butler(28August2012).MultinationalFinance:EvaluatingOpportunities,Costs,andRisksofOperations.JohnWiley&Sons.pp.37.
ISBN9781118282762.
10.DietmarFranzen(6December2012).DesignofMasterAgreementsforOTCDerivatives.SpringerScience&BusinessMedia.pp.7.ISBN9783
642569326.
11.CorporateFinance:PartI.Bookboon.pp.32.ISBN9788776815684.
12.http://www.emeraldinsight.com/Insight/viewContentItem.dojsessionid=EFA8D4FB63329F2C94F48279646551BF?
contentType=Article&contentId=1649008(contrarytoconventionalwisdomitmayberationaltohedgetranslationexposure.Empiricalevidenceof
agencycostsandthemanagerialtendencytoreporthigherlevelsoftranslatedincome,basedontheearlyadoptionofFinancialAccountingStandard
No.52).
13.Aggarwal,Raj,"TheTranslationProbleminInternationalAccounting:InsightsforFinancialManagement."ManagementInternationalReview15
(Nos.23,1975):6779.(Proposedaccountingframeworkforevaluatinganddevelopingtranslationproceduresformultinationalcorporations).
14.http://www.iijournals.com/doi/abs/10.3905/jpm.1997.409611(DiscussesthebenefitsforhedginginforeigncurrenciesforMNCs).
15.SEC(SecuritiesandExchangeCommission),https://www.sec.gov/comments/s71615/s7161533.pdf
16.TheGlobalAssociationofRiskProfessionals,http://garp.org/#!/frm/
17.Linkedin,https://www.linkedin.com/company/globalassociationofriskprofessionals
18..FRM,CFA,http://www.ppclass.com/special/FRM
19.BLACKROCK,SpeechatGARP16thAnnualRiskManagementConference,https://www.blackrock.com/corporate/enin/literature/publication/2nd
nbnigsififsbiosco052915.pdf
20.Edupristine,http://www.edupristine.com/frm/aboutgarp
21.Brighttalk,https://www.brighttalk.com/channel/10797/garp
22.HKMAGARPGLOBALRISKFORUM(20135.285.29),https://fisher.osu.edu/supplements/10/9608/HKMAGARPForum20130430.pdf
23.WallstreetmojoofficialFRMsalary,http://www.wallstreetmojo.com/frmsalary/
24.Chen,Liyan."2015Global2000:TheWorld'sLargestBanks",ForbesMagazine.http://www.forbes.com/sites/liyanchen/2015/05/06/2015global
2000theworldslargestbanks/
25.TheBenefitsofProfessionalCertification,WilliamMayWilliamMaySeniorVicePresident,
http://www.garp.org/newmedia/presentations/frmerprecognitionceremony_williammay_021014.pdf
26.iactglobal(2010.5.)http://www.iactglobal.in/images/FRM_Companies.pdf
27.2012FinancialRiskManagerRoadshow,http://sem.tongji.edu.cn/semen_data/attachments/month_1206/201265155126.pdf
28.OfficialCandidateGuide,http://storage.pardot.com/39542/121486/FRM_2017_CandidateGuide_V8.2_AG.pdf
29.GARPBuySideRiskManagersForumRiskPrinciplesforAssetManagers(2015.6.11)http://www.ermsymposium.org/2015/presentations/C
19.pdf
30.GARPFrequentlyAskedQuestionsEXAMregulations,http://www.garp.org/#!/frm/frequentlyaskedquestions
31.Knowledge,SkillsandAbilitiesofaFinancialRiskManager,ChristopherDonohue,PhDManagingDirector,
http://www.garp.org/newmedia/presentations/KnowledgeSkillsAbilitiesOfAFinancialRiskManager_ChrisDonohue_020415.pdfs
32.Docslide,FRMJobTaskAnalysis:ExecutiveSummary,http://download.docslide.us/getdownload/document/?
id=zAhSK2vKhR3qBEJDWx%2BSqttyA7hWLiCkVaptu1bkmQeE4%2F2m0%2FBheo2Mjo4f0fU%2FL%2FFsHdon4ICGKzdZiu%2FCaw%3D%3D

Externallinks
CERATheCharteredEnterpriseRiskAnalystCredentialSocietyofActuaries(SOA)(http://www.ceranalyst.org/)
FinancialRiskManagerCertificationProgramGlobalAssociationofRiskProfessional(GARP)(http://www.garp.com)
ProfessionalRiskManagerCertificationProgramProfessionalRiskManagers'InternationalAssociation(PRMIA)(http://www.prim
ia.org/)
Managingaportfolioofstockandriskfreeinvestments:atutorialforrisksensitiveinvestors(http://www.sigmadewe.com/portfoliom
anagement.html?&L=1)
RiskJournals(http://www.risk.net/journal/)
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