Financial Risk Management | MBA 4th Sem | JNTUK

Syllabus

EF-403: Financial Risk Management

Unit – I: Introduction The Concept of Risk, Nature, Need and Scope of Risk. Source, Measurement, Identification and Evaluation of Risk. Types of Risk–Product Market Risk and Capital Market Risk. Possible Risk Events, Risk Indicators, Risk Management Process–Pre-requisites and Fundamentals. Misconceptions of Risk. An Integrated Approach to Corporate Risk Management. Risk Management Approaches and Methods. A Comprehensive View of Risk in Financial Institutions. Risk Reporting Process–Internal and External.

Unit – II: Measurement and Management of Risk: Value at Risk (VaR): The Concept, Computation, Stresses Testing, Back Testing. Cash Flow at Risk (CaR): VaR and CaR to Make Investment Decisions. Managing Risk When Risk is Measured by VaR or CaR Non-Insurance Methods of Risk Management-Risk Avoidance, Loss Control, Risk Retention and Risk Transfer. Asset-Liability Management (ALM): Evolution & Concept, RBI Guidelines. Capital Adequacy. Management of Interest Rate Risk, liquidity Risk, Credit Risk and Exchange Rate Risk.

Unit – III: Techniques and Tools of Risk Management: Forward Contracts and Futures Contracts The Concept of Derivatives and Types of Derivatives. The Role of Derivative Securities to Manage Risk and to Exploit Opportunities to Enhance Returns. Individuals, Speculators, Hedgers, Arbitrageurs and Other Participants in Derivatives Market. Forward Contracts: Definition, Features and Pay-Off Profile of Forward Contract. Valuation of Forward Contracts. Forward Contracts to Manage Commodity Price Risk, Interest Rate Risk and Exchange Rate Risk. Limitations of Forward Contract. Futures Contracts: Definition. Clearing House, Margin Requirements, Marking to the Market. Basis and Convergence of Future Price to Spot Price. Valuation of Futures Contract. Differences Between Forward Contracts and Futures Contracts. Risk Management with Futures Contracts–the Hedge Ratio and the Portfolio Approach to a Risk–Minimizing Hedge.

Unit – IV: Techniques and Tools of Risk Management: SWAPS Definition, Types of Swaps. Interest Rate Swaps, Currency Swaps. Interest Rate Swaps: Mechanics of Interest Rate Swaps .Using Interest Rate Swaps to Lower Borrowing Costs, Hedge Against Risk of Rising and Falling Interest Rates. Valuation of Interest Rate Swaps. Pricing of Interest Rate Swaps at Origination and Valuing of Interest Rate Swaps After Origination. Currency Swaps: Types of Currency Swaps. Valuation of Currency Swaps. Using Currency Swaps to Lower Borrowing Costs in Foreign Country, to Hedge Against Risk of a Decline in Revenue, to Hedge Against Risk of an Increase in Cost, to Hedge Against Risk of a Decline in the Value of an Asset, to Hedge Against Risk of a Rise in the Value of a Liability. Pricing of Currency Swap at Origination and Valuing of Currency Swap after Origination.

Unit – V: Techniques and Tools of Risk Management: Options Definition of an Option. Types of Options: Call Option, Put Option, American Option and European Option. Options in the Money, at the Money and Out of the Money. Option Premium, Intrinsic Value and Time Value of Options. Pricing of Call and Put Options at Expiration and Before Expiration. Options on Stock Indices and Currencies. The Binominal Option Pricing Model (BOPM): Assumptions - Single and Two Period Models. The Black & Scholes Option Pricing Model (BSOPM): Assumptions.