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Risk management-36

Elsevier Ltd
DOI: 10.1016/b978-075064677-2.50043-7
  • Economics


Publisher Summary This chapter considers aspects of the risks to which participants in the capital markets are exposed and the risk management function to which banks and securities houses now devote a significant part of their resources. The chapter presents a brief overview of the risk management function for financial market practitioners. It also reviews the Value-at-Risk tool that has become the main market (and credit) risk measurement methodology used in the market. The types of risk that a bank or securities house is exposed to as part of its operations in the bond and capital markets include market risk, credit risk, liquidity risk, operational risk, market risk, and currency risk. Risk exists in all competitive business although the balance between financial risks and general and management risk varies with the type of business that is being engaged in. The key objective of the risk management function within a financial institution is to allow for a clear understanding of the risks and exposures the firm is engaged in, such that any monetary loss is deemed acceptable by the firm. Portfolio managers employ a number of non-VaR measures of risk.

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