Sessio10 - AFP Learning System Treasury Session 10 Module 5 Global Treasury Risks and Controls v1.1 2004 Association for Financial Professionals

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v1.1 © 2004 Association for Financial Professionals. All rights reserved. Session 10: Module 5, Chapter 17 - 1 AFP Learning System: Treasury Session 10 Risks and Controls
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v1.1 © 2004 Association for Financial Professionals. All rights reserved. Session 10: Module 5, Chapter 17 - 2 Session 10, Module 5: Risks and Controls Chapter 17: Financial Risk Management Chapter 18: Enterprise Risk Management
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v1.1 © 2004 Association for Financial Professionals. All rights reserved. Session 10: Module 5, Chapter 17 - 3 Chapter 17: Financial Risk Management—Outline Overview of Financial Risk Management Derivative Instruments Used as Risk Management Tools Interest Rate Exposure FX Rate Exposure Commodity Price Exposure Accounting and Tax Issues
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v1.1 © 2004 Association for Financial Professionals. All rights reserved. Session 10: Module 5, Chapter 17 - 4 Determining the company’s risk attitude Identifying the exposure Measuring the exposure Implementing an appropriate risk management strategy Monitoring the exposure and evaluating the strategy Step 1 Risk Management Process Step 2 Step 3 Step 4 Step 5
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v1.1 © 2004 Association for Financial Professionals. All rights reserved. Session 10: Module 5, Chapter 17 - 5 Risk Management Profile A risk profile analysis needs to: Identify risks. Classify them into clearly defined categories. Quantify them with respect to probability and impact on the company. The relationship of how the value of a company changes as some financial price variables change
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v1.1 © 2004 Association for Financial Professionals. All rights reserved. Session 10: Module 5, Chapter 17 - 6 Value-At-Risk (VAR) Determines how value of company is affected by changes in financial variables Developed in trading rooms of financial institutions to estimate possible losses from entire trading operation in a day Designed to handle wide range of risk factors and summarize results in a single measure Determines risk as a function of probability and monetary impacts of adverse event over a period Uses Monte Carlo simulations to determine VAR risk profiles
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v1.1 © 2004 Association for Financial Professionals. All rights reserved. Session 10: Module 5, Chapter 17 - 7 Hedging, Speculation and Arbitrage Hedging Reducing or eliminating risk and price uncertainty of an asset under consideration Speculation Assuming risk and betting on the direction of the market and whether the price of an asset will go up (long) or down (short) Arbitrage Assuming no risk but attempting to profit from market inefficiencies by buying an asset in one market and simultaneously selling in another
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v1.1 © 2004 Association for Financial Professionals. All rights reserved. Session 10: Module 5, Chapter 17 - 8 Forward Contracts Company buying asset is one party; the other is called the counterparty (bank or FX dealer). Asset involved is referred to as the underlying asset.
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This note was uploaded on 02/08/2011 for the course FINANCE 430 taught by Professor Richter during the Spring '11 term at Rutgers.

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Sessio10 - AFP Learning System Treasury Session 10 Module 5 Global Treasury Risks and Controls v1.1 2004 Association for Financial Professionals

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