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ASSIGNMENT
MS- 494: Risk Management in Banks
Course
Code : MS-494
Course
Title : Risk Management in
Banks
Assignment
Code : MS-494/SEM-I/2014
Coverage
: All Blocks
Note : Attempt all the questions and submit this assignment on or
before 30th April, 2014 to the coordinator of your study center.
1. Discuss the
framework of Basel Accord – I and II and explain the changes proposed in the
Basel Accord – II for the Basel Accord – III.
Answer : Basel I is the round of
deliberations by central bankers from around the world, and in 1988, the Basel
Committee on Banking Supervision (BCBS) in Basel, Switzerland, published a set
of minimum capital requirements for banks. This is also known as the 1988 Basel
Accord, and was enforced by law in the Group of Ten (G-10) countries in 1992. A
new set of rules known as Basel II was later developed with the intent to
supersede the Basel I accords. However they were criticized by some for allowing
banks to take on additional types of risk, which was considered part of the
cause of the US subprime financial crisis that started in 2008. In fact, bank
regulators in the United States took the position of requiring a bank to
2. What is ‘Credit Risk
Derivative’? Explain the various types of Credit Derivatives and discuss their
special features.
Answer : In finance, a credit
derivative refers to any one of
"various instruments and techniques designed to separate and then transfer
the credit risk" or the risk of an event of default of a corporate or
sovereign borrower, transferring it to an entity other than the lender or
debtholder.
Types of Credit Derivatives
A credit derivative is a
financial instrument that transfers credit risk related to an underlying entity
or a portfolio of underlying entities from one party to
3. What do you mean by
‘Market Risk’? Discuss the factors that contribute to this risk. How is market
risk managed?
Answer : Market risk is the fluctuation of returns caused by the
macroeconomic factors that affect all risky assets.
Market risk encompasses the risk of financial loss resulting from
movements in market prices. Market risk is rated based upon, but not limited
to, an assessment of the following evaluation factors:
4. Explain the concept
of ‘Interest Rate Risk’ and discuss the reasons for a Bank to use Interest Rate
Futures.
Answer : Interest-rate risk is
the risk, taken by bond investors, that interest rates will rise after they
buy. Stated another way, it is the risk that a bond's yield will rise (as its
price falls) after it has been purchased.
All bonds involve interest-rate
risk, but some involve more than others. The more interest-rate risk a bond
involves, the more its price will fall as its yield rises. Duration quantifies
the amount of interest-rate risk a bond involves.
5. Discuss the need for
effective operational risk management and explain the process of operational
risk management in Banks.
Answer : The need for effective operational risk management:
As ORM efforts mature, and gain
both the support and the confidence of management, they are becoming
increasingly valuable to the business. Perceived initially to support
regulatory requirements, these efforts can be leveraged and aligned with
business performance management. To be successful, however, such alignment must
be based on a clear vision of the potential benefits. Few of the benefits are
discussed below:
·
Identified
and assessed key operational risk exposures: ORM enables an organization to
identify measure, monitor and control its
·
Dear students get fully solved
assignments
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