Financial Risk Management Assignment Example | Topics and Well Written Essays - 3500 words

Financial Risk concern - Assignment ExampleThe banking and financial institutions of a country are responsible for the development and progress of diametric sectors in the economy. They mobilize household savings and lend it to the potential investors in a country. Investments made in the product line corporations help them to expand and generate more employment opportunities in a country. Thus, financial institutions and banks meet a pivotal rule in the progress of a nation (Saunders and Cornett, 2011). check 1 innocent Banking Model (Source PPT) Figure 1 above depicts the simplest version of banking model in an economy. However the primary task of these institutions also constitute in offering loans to only the worthy borrowers. Rise in the threshold of bighearted debts result in acute loss of all the related economic entities. Thus, controlling acknowledgment, interest and useable risk is one of the most important tasks conducted by all financial institutions. However, t he actual framework of banking dust in an economy is more complex, this takes into account the market securities and banking risks involved in lending operations (ECB, 2011). Figure 2 Securitization Model of Banking (Source PPT) Figure 3 Optimization Model (Source PPT) Risks and Challenges to the Banking Institutions The modern banking and financial institutions shit approach several challenges and risks in its process. One of the primary challenges is to introduce mobile banking as regular mode in all banking activities. They have executed several operations to stimulate growth in an economy, sustaining profit levels in an environment with low interest rates etc. They have taken active measures to enhance smashing quality and improve capital surplus. Modern banks have tried their best to enrich customer birth along with restoring public confidence regarding industry. In the recent years the managers of the financial institutions are giving senior high school importance in risk managements. In 1970s large sums of loans were offered by the financial institutions to different business enterprises in the Eastern bloc, Latin American and less developed economies, but in 1980s it was set in motion that many borrowers were unable to pay back their loans in time. Government in many economies have introduced the calamus of Sovereign Debt Ceiling. By this rule, the borrowers are forced to be defaulters even though they comprise strong credit rating. The global financial instability is increasing with time. Financial crisis in most of the developed and developing economies have increased the credit risks faced by the banking and financial institutions. Many developed economies are suffering from huge debts and failed projects are demanding implicit bail outs from the government. Figure 4 Emerging Market Risks (Source IMF, 2011) The above cob attach model explains the increased market risks faced by banking and non banking financial institutions in the modern er a. Banks and financial institutions consume with different currencies in different economies thus they are often exposed to exchange rate hesitation risks. They also suffer from high price volatility risks. Interest rate risks faced by the mercantile banks are of different types. Repairing risks are also known as the maturity risks, these are the risks that arise delinquent to the inverse relationships between bond prices and interest rates in the market. Basis risks are the ones that arise imputable t