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ASSIGNMENT OF FMRS

NATIONAL LAW UNIVERSITY, JODHPUR

SUBMITTED BY: RUCHIKA SINGH(605), TEK CHAND MEENA(614), VIVEK KUMAR MISHRA(616), NATIONAL LAW UNIVERSITY, JODHUR

1

ASSIGNMENT: INTERNATIONAL RISK

MANAGEMENT

SUBMITTED TO:-

SUBMITTED BY:-

DR. RITUPARNA DAS RUCHIKA

SINGH(605), TEK CHAND MEENA(614)

ASSOSIATE PROFESSOR

NATIONA! !A" UNI#ERSITY, $ODHPUR #I#EK

KUMAR MISHRA(616)

BANKING AND

FINANCE(!!.M. SECOND SEMESTER)

FMRS



[ASSIGNMENT: INTERNATIONAL FINANCIAL RISK

MANAGMENT]


CONTENT AT A GLANCE:

INTRODUCTION………………………………………………………………………………5

MEANING…………………………………………………………………………………….…6

FINANCIAL RISK MANAGER……………………………………………………………….

HISTORY AND DEVELOPMENT OF THE FRM…………………………………………..

THE IMPORTANT ROLES WITHIN A FINANCIAL MANAGEMENT SYSTEM……..!

RISK……………………………………………………………………………………………..""

TYPES OF RISK………………………………………………………………………………."#

RISK MANAGEMENT STEPS AND TOOLS………………………………………………."6

PROCESS OF RISK MANAGEMENT…………………………………………………...…."

RISK IDENTIFICATION:……………………………………………………………………."$

MONITORING THE RISK……………………………………………………………………"!

TECHNI%UES OF RISK MANAGEMENT…………………………………………………&'

FINANCIAL RISK IN US MARKET…………………………………………………...……&(

CHALLENGES IN THE INDIAN CONTE)T…………………………………………...….#"

CONCLUSION………………………………………………………………...……………….#(

*I*LIOGRAPHY………………………………………………………………………………#6

SUBMITTED BY: RUCHIKA SINGH(605), TEK CHAND MEENA(614), VIVEK KUMAR MISHRA(616), NATIONAL LAW UNIVERSITY, JODHUR !

"




MANAGMENT]


A*STRACT

T*% fast -*a!)i!) fi!a!-ia %!$iro!0%!t %7os%s t*% #a!(s to $ario's t+%s of ris(. T*% -o!-%t

of ris( a!" 0a!a)%0%!t ar% -or% of fi!a!-ia %!t%rris%. T*% fi!a!-ia s%-tor %s%-ia+ t*% #a!(i!) i!"'str+ i! 0ost %0%r)i!) %-o!o0i%s i!-'"i!) I!"ia is assi!) t*ro')* a ro-%ss of

-*a!)%. Risi!) )o#a -o0%titio!, i!-r%asi!) "%r%)'atio!, i!tro"'-tio! of i!!o$ati$% ro"'-ts

a!" "%i$%r+ -*a!!%s *a$% 's*%" ris( 0a!a)%0%!t to t*% for%fro!t of to"a+8s fi!a!-ia

a!"s-a%. A#iit+ to )a')% t*% ris(s a!" ta(% aroriat% ositio! &i #% t*% (%+ to s'--%ss.

T*is a%r att%0ts to "is-'ss i! "%t*, t*% i0orta!-% of ris( 0a!a)%0%!t ro-%ss a!" t*ro&s

i)*t o! -*a%!)%s a!" oort'!iti%s r%)ar"i!) i0%0%!tatio! of 9as%1II i! I!"ia! 9a!(i!)

I!"'str+.


4




MANAGMENT]


INTRODUCTION:

Fi!a!-ia ris( 0a!a)%0%!t is a! ar%a &*i-* )ai!%" 0'-* ro0i!%!-% ost t*% r%-%!t fi!a!-ia

-risis. T*% )%!%sis of t*% fi!a!-ia -risis is t*% a#'s% of $ario's i!!o$ati$% fi!a!-ia ro"'-ts.T*% )o#a fi!a!-ia 0%t"o&! *as t*ro&! t*% fo-'s o! t*% !%%" to -r%at% a !%& #r%%" of fi!a!-%

%7%rts, &*o ar% a"%t at -r%ati!) a!" 0a!a)i!) t*% ris(s of i!!o$ati$% fi!a!-ia ro"'-ts s'-*

as "%ri$ati$%s. T*% r%-%!t fi!a!-ia -risis is ar)%+ t*% r%s't of 0a!a)%rs !ot #%i!) a#% to

-o0%t%+ '!"%rsta!" a!" 0a!a)% o%ratio!a ris(s of t*% !%& )%!%ratio! of "%ri$ati$%s. It is

#%i%$%" t*at f't'r% fi!a!-% 0a!a)%rs 0'st #% f'+ %'i%" &it* t*% 0at*%0ati-a a!"

-o!-%t'a t*%ori%s a!" #%st ra-ti-%s t*at )o i!to t*% -r%atio! a!" 0a!a)%0%!t of s'-*

i!!o$ati$% ro"'-ts. T*% !%%" for so*isti-at%" fi!a!-ia 0ar(%ts s%-iaists is f%t !ot o!+ for

i!t%r0%"iari%s i(% #a!(i!), i!$%st0%!t #a!(i!), i!s'ra!-% i!"'stri%s #'t aso s%r$i-% ro$i"%rs

of t*%s% fi!a!-ia i!t%r0%"iari%s i(% soft&ar% a!" 9PO i!"'stri%s. T*is Pro)ra00% ai0s to

"%$%o -'tti!)1%")% (!o&%")% a!" s(is %7%-t%" #+ t*% i!t%r0%"iari%s a!" s%r$i-% ro$i"%rs

of i!t%r0%"iari%s.

Most fi!a!-% -o'rs%s a!" t%7t#oo(s i0i-it+ ass'0% t*at fir0s o%rat% i! o!+ a si!)% -o'!tr+

a!" t*at "iff%r%!-%s #%t&%%! -o'!tri%s ar% irr%%$a!t. Ho&%$%r, si!-% t*% %!" of Wor" War II,

t*% for%i)! a-ti$iti%s of fir0s *a$% )ro&! s'#sta!tia+, a!" t*is )ro&t*, if a!+t*i!), a%ars to #% a--%%rati!). Fir0s of a t+%s a!" si;%s !o& fa-% "%-isio!s a#o't *o& to #%st o#tai! a!"

"%o+ r%so'r-%s a#roa". F'rt*%r0or%, si)!ifi-a!t "iff%r%!-%s #%t&%%! -o'!tri%s *a$% %rsist%",

a!" t*%s% )i$% ris% to -o!si"%ra#% $ariatio! i! t*% r%$a%!-% of 0ar(%t i0%rf%-tio!s. Mar(%t

i0%rf%-tio! 0a(%s t*% -*a!-%s of ris( i! %-o!o0+ a!" ris( is "%fi!%" as a!+t*i!) t*at -a!

-r%at% *i!"ra!-%s i! t*% &a+ of a-*i%$%0%!t of -%rtai! o#<%-ti$%s. It -a! #% #%-a's% of %it*%r

i!t%r!a fa-tors or %7t%r!a fa-tors, "%%!"i!) 'o! t*% t+% of ris( t*at %7ists &it*i! a arti-'ar

sit'atio!.

E7os'r% to t*at ris( -a! 0a(% a sit'atio! 0or% -riti-a. A #%tt%r &a+ to "%a &it* s'-* a

sit'atio!= is to ta(% -%rtai! roa-ti$% 0%as'r%s to i"%!tif+ a!+ (i!" of ris( t*at -a! r%s't i!

'!"%sira#% o't-o0%s. I! si0% t%r0s, it -a! #% sai" t*at 0a!a)i!) a ris( i! a"$a!-% is far #%tt%r

t*a! &aiti!) for its o--'rr%!-%.


5




MANAGMENT]


As a -o!s%'%!-%, #asi- fi!a!-ia "%-isio!s !o& i!$o$% -ross1#or"%r -o0%7iti%s. /*oi-%s

a#o't raisi!) -aita, i!$%st0%!t, ris( 0a!a)%0%!t, a-'isitio! a-ti$it+, r%str'-t'ri!), a!" ot*%r

as%-ts of fi!a!-ia oi-+ t+i-a+ i!$o$% i!t%r!atio!a -o!si"%ratio!s. W*%! 0a(i!) t*%s%

-*oi-%s, 0a!a)%rs 0'st a!a+;% %7-*a!)% rat%s, "iff%r%!-%s i! ta7 r'%s, -o'!tr+ ris( fa-tors, a!"

$ariatio! i! %)a r%)i0%s.

T*is -o'rs% ro$i"%s t*% fo'!"atio!s for %ar!i!) *o& fi!a!-% &or(s i! t*is ri-* -ross1#or"%r

s%tti!). A!" -ross #or"%ri!) sit'atio! ris%s t*% !%%" for t*% ris( 0a!a)%0%!t a!" Ris(

Ma!a)%0%!t is a 0%as'r% t*at is 's%" for i"%!tif+i!), a!a+;i!) a!" t*%! r%so!"i!) to a

arti-'ar ris(. It is a ro-%ss t*at is -o!ti!'o's i! !at'r% a!" a *%f' too i! "%-isio! 0a(i!)

ro-%ss.

Lar)% !atio!a a!" 0'ti!atio!a -o0a!i%s i! 0a!+ i!"'striais%" -o'!tri%s ar% r%ort%" to #%

0a(i!) i!-r%asi!) 's% of at%r!ati$% so'r-%s of fi!a!-%, s'-* as sto-( 0ar(%t isti!),

i!t%r!atio!a #o!" iss'%s, a!" i!t%r!atio!a 0ar(%ts for -ororat% %!"i!) &*i-* oft%! i!$o$%

tra!sa-tio!s &it* fi!a!-ia a-tors ot*%r t*a! <'st t*a! #a!(s. S0a a!" 0%"i'01si;%" %!t%rris%s,

&*i-* a--o'!t for $%r+ si)!ifi-a!t arts of %-o!o0i- a-ti$it+ a!" %0o+0%!t i! t*% t&o

so-i%ti%s, *a$% o!+ i0it%" a--%ss to s'-* at%r!ati$% so'r-%s of fi!a!-%. T*%+ t*%r%for% sti ar%,

a!" i! so0% -o'!tri%s %$%! i!-r%asi!)+ "%%!"%!t o! #a!( %!"i!).

MEANING:

Fi!a!-ia ris( 0a!a)%0%!t is a ro-%ss t*at %!tais -o0a!i%s s%tti!) ' )'i"%i!%s to "%fi!%

t*%ir oi-+ o! a--%ti!) fi!a!-ia ris(. I!"i$i"'as &*o &or( i! fi!a!-ia ris( 0a!a)%0%!t "o

!ot 0a(% i!$%st0%!t "%-isio!s for a -o0a!+. I!st%a", t*os% i!"i$i"'as -r%at% t*% )'i"%i!%s

t*at t*% ris(1ta(%rs 0'st foo& &*%! a!a+;i!) i!$%st0%!ts t*%+ ar% -o!si"%ri!) for t*%

-o0a!+.

Fi!a!-ia ris( 0a!a)%0%!t is "%fi!%" as t*% ra-ti-%s a!" ro-%"'r%s t*at a -o0a!+ 's%s to

oti0i;% t*% a0o'!t of ris( it *a!"%s &it* its fi!a!-ia i!t%r%sts. S%!ior %a"%rs of a -o0a!+

t*at ra-ti-%s fi!a!-ia ris( 0a!a)%0%!t s*o'" ro"'-% a &ritt%! oi-+ o! fi!a!-ia ris(s t*%+


6




MANAGMENT]


ar% &ii!) to a--%t a!" foo& t*at oi-+. T*%+ s*o'" aso 0o!itor t*% ris(s ta(%!, a!" r%%as%

r%orts o! t*% r%s'ts of t*%s% ris(s to *% &it* a!a+;i!) t*%0.

FINANCIAL RISK MANAGER:

T*% Fi!a!-ia Ris( Ma!a)%r >FRM? "%si)!atio! is a! i!t%r!atio!a rof%ssio!a

-%rtifi-atio! off%r%" #+ t*% Go#a Asso-iatio! of Ris( Prof%ssio!as. To #% a&ar"%" t*% FRM

"%si)!atio!, -a!"i"at%s 0'st -o0%t% ri)oro's t&o1art, ra-ti-%1ori%!t%" %7a0i!atio! t*at

-o$%rs t*% 0a<or toi-s i! fi!a!-ia ris( 0a!a)%0%!t, "%0o!strat% t&o +%ars8 rof%ssio!a &or(

%7%ri%!-% i! fi!a!-ia ris( 0a!a)%0%!t, a!" 0%%t ot*%r r%'ir%0%!ts.

T*% FRM is a 'aifi-atio! for ris( 0a!a)%0%!t rof%ssio!as, arti-'ar+ t*os% &*o ar%

i!$o$%" i! a!a+;i!), -o!troi!), or ass%ssi!) ot%!tia -r%"it ris( ,0ar(%t ris( , a!" i'i"it+

ris( as &% as !o!10ar(%t r%at%" fi!a!-ia ris(s. FRM *o"%rs %rfor0 a #roa" $ari%t+ of

f'!-tio!s r%at%" to ris( 0a!a)%0%!t &it*i!i!$%st0%!t #a!(s, ass%t 0a!a)%0%!t fir0s, as &%

as i! -ororatio!s a!" )o$%r!0%!t a)%!-i%s. To %0o+%rs of FRM *o"%rs i!-'"% )o#a

fi!a!-ia s%r$i-%s fir0s D%'ts-*% 9a!( , HS9/, a!" U9S, as &% as a'"iti!) fir0s KPMG, Er!st

@ Yo'!) >EY? a!" Pri-%&at%r*o's%/oo%rs >P&/?. T*% FRM "%si)!atio! s%-ifi-atio! is

"is-os%" o! t*% U.S. Fi!a!-ia I!"'str+ R%)'ator+ A't*orit+ >FINRA? %"'-atio! &%#sit% &*%r%

t*% FRM -%rtifi-at% ro)ra0 is s*o&! o! t*% FINRA )'i"% to "%si)!atio!s. T*% FRM

a!" PRMIA8s PRM ar% oft%! -o0ar%" as #%i!) t*% t&o "%fi!iti$% ris( 0a!a)%0%!t "%si)!atio!s

i! t*% i!"'str+.

HISTORY AND DEVELOPMENT OF THE FRM:

GARP5 first a&ar"%" t*% FRM "%si)!atio! i! 5B.

/a!"i"at% %!ro0%!t i! t*% FRM ro)ra0 *as )ro&! rai"+: #%t&%%! 4335 a!" 4353,

r%)istratio! i!-r%as%" at a -o0o'!" a!!'a rat% of 0or% t*a! 46C4.

1 G$%&'$ A%*'+*% %- R*. /%-*%'$

"GAR A%2 100,000+3 /*+/'+ -%/ RM E'78 '/98%/8 R+/*; "011<

10<01


=

http://en.wikipedia.org/wiki/Professional_certification


http://en.wikipedia.org/wiki/Global_Association_of_Risk_Professionals

http://en.wikipedia.org/wiki/Financial_risk_management

http://en.wikipedia.org/wiki/Credit_risk

http://en.wikipedia.org/wiki/Market_risk

http://en.wikipedia.org/wiki/Liquidity_risk


http://en.wikipedia.org/wiki/Investment_bank

http://en.wikipedia.org/wiki/Asset_management

http://en.wikipedia.org/wiki/Deutsche_Bank

http://en.wikipedia.org/wiki/HSBC

http://en.wikipedia.org/wiki/UBS

http://en.wikipedia.org/wiki/KPMG

http://en.wikipedia.org/wiki/Ernst_%26_Young


http://en.wikipedia.org/wiki/PricewaterhouseCoopers

http://en.wikipedia.org/wiki/Financial_Industry_Regulatory_Authority

http://en.wikipedia.org/wiki/Professional_Risk_Managers'_International_Association

http://en.wikipedia.org/wiki/Professional_Risk_Manager

http://en.wikipedia.org/wiki/Global_Association_of_Risk_Professionals

http://en.wikipedia.org/wiki/Financial_risk_management

http://en.wikipedia.org/wiki/Credit_risk

http://en.wikipedia.org/wiki/Market_risk



http://en.wikipedia.org/wiki/Investment_bank

http://en.wikipedia.org/wiki/Asset_management

http://en.wikipedia.org/wiki/Deutsche_Bank

http://en.wikipedia.org/wiki/HSBC

http://en.wikipedia.org/wiki/UBS

http://en.wikipedia.org/wiki/KPMG



http://en.wikipedia.org/wiki/PricewaterhouseCoopers

http://en.wikipedia.org/wiki/Financial_Industry_Regulatory_Authority

http://en.wikipedia.org/wiki/Professional_Risk_Managers'_International_Association

http://en.wikipedia.org/wiki/Professional_Risk_Manager






MANAGMENT]


Gro&t* *as o--'rr%" !ot <'st i! t*% U!it%" Stat%s #'t aso i! E'ro% a!" Asia: to"a+, 0or% t*a!

B3C of FRM *o"%rs r%si"% o'tsi"% of t*% U!it%" Stat%s. To t%rritori%s of r%si"%!-% for FRM

*o"%rs i!-'"% t*% U!it%" Ki!)"o0, S⁢%ra!", Si!)aor%, a!" Ho!) Ko!).

W*i% t*% fi!a!-ia -risis of 433B4353 r%s't%" i! a "ra0ati- "o&!t'r! i! o$%ra fi!a!-ia

s%r$i-%s %0o+0%!t, t*% %ff%-t *as #%%! oosit% i! t*% fi%" of ris( 0a!a)%0%!t:

t*% #a!(r't-+ of L%*0a! 9rot*%rs a!" t*% -oas% of ot*%r ar)% fi!a!-ia i!stit'tio!s

'!"%rs-or%" t*% !%%" to a--'rat%+ ri-% t*% ris( i!*%r%!t i! 45st -%!t'r+ fi!a!-ia ro"'-ts a!"

0ar(%ts. T*% fi!a!-ia -risis *as )i$%! a )r%at%r ro% to fi!a!-ia ris( rof%ssio!as, a!" "ri$%!

f'rt*%r "%0a!" for s(i%" fi!a!-ia ris( 0a!a)%rs a!" t*% FRM "%si)!atio!.

As of F%#r'ar+ 4354, GARP *as 0or% t*a! 546,333 r%)istratio!s for t*% FRM E7a0 fro0 54

-o'!tri%s aro'!" t*% &or". T*%r% ar% o$%r 4,333 /%rtifi%" FRMs ra-ti-i!) &or"&i"% 2. T*%

FRM is a )o#a+ r%-o)!i;%" #%!-*0ar( -%rtifi-atio! ro)ra0 for fi!a!-ia ris( 0a!a)%rs, a!"

is -o!si"%r%" to #% t*% "% fa-to )o#a 'aifi-atio! i! t*% ra-ti-% of fi!a!-ia ris( 0a!a)%0%!t.

WHEN TO USE FINANCIAL RISK MANAGEMENT:

Fi!a!-% t*%or+ >i.%., fi!a!-ia %-o!o0i-s? r%s-ri#%s t*at a fir0 s*o'" ta(% o! a ro<%-t &*%! it

i!-r%as%s s*ar%*o"%r $a'%. Fi!a!-% t*%or+ aso s*o&s t*at fir0 0a!a)%rs -a!!ot -r%at% $a'%

for s*ar%*o"%rs, aso -a%" its i!$%stors, #+ ta(i!) o! ro<%-ts t*at s*ar%*o"%rs -o'" "o for

t*%0s%$%s at t*% sa0% -ost.

W*%! ai%" to fi!a!-ia ris( 0a!a)%0%!t, t*is i0i%s t*at fir0 0a!a)%rs s*o'" !ot *%")%

ris(s t*at i!$%stors -a! *%")% for t*%0s%$%s at t*% sa0% -ost. T*is !otio! &as -at'r%" #+

t*% *%")i!) irr%%$a!-% roositio!: I! a %rf%-t 0ar(%t, t*% fir0 -a!!ot -r%at% $a'% #+ *%")i!)

a ris( &*%! t*% ri-% of #%ari!) t*at ris( &it*i! t*% fir0 is t*% sa0% as t*% ri-% of #%ari!) it

o'tsi"% of t*% fir0. I! ra-ti-%, fi!a!-ia 0ar(%ts ar% !ot i(%+ to #% %rf%-t 0ar(%ts.

#RM '+8'/98%/8 R+/*; "01"<0"<168


>

http://en.wikipedia.org/wiki/The_United_Kingdom

http://en.wikipedia.org/wiki/Switzerland

http://en.wikipedia.org/wiki/Singapore

http://en.wikipedia.org/wiki/Hong_Kong

http://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932010

http://en.wikipedia.org/wiki/Bankruptcy_of_Lehman_Brothers

http://en.wikipedia.org/wiki/The_United_Kingdom

http://en.wikipedia.org/wiki/Switzerland

http://en.wikipedia.org/wiki/Singapore

http://en.wikipedia.org/wiki/Hong_Kong

http://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932010

http://en.wikipedia.org/wiki/Bankruptcy_of_Lehman_Brothers




MANAGMENT]


T*is s'))%sts t*at fir0 0a!a)%rs i(%+ *a$% 0a!+ oort'!iti%s to -r%at% $a'% for s*ar%*o"%rs

'si!) fi!a!-ia ris( 0a!a)%0%!t. T*% tri-( is to "%t%r0i!% &*i-* ris(s ar% -*%a%r for t*% fir0 to

0a!a)% t*a! t*% s*ar%*o"%rs. A )%!%ra r'% of t*'0#, *o&%$%r, is t*at 0ar(%t ris(s t*at r%s't

i! '!i'% ris(s for t*% fir0 ar% t*% #%st -a!"i"at%s for fi!a!-ia ris( 0a!a)%0%!t.

T*% -o!-%ts of fi!a!-ia ris( 0a!a)%0%!t -*a!)% "ra0ati-a+ i! t*% i!t%r!atio!a

r%a0. M'ti!atio!a /ororatio!s ar% fa-%" &it* 0a!+ "iff%r%!t o#sta-%s i! o$%r-o0i!) t*%s%

-*a%!)%s. T*%r% *as #%%! so0% r%s%ar-* o! t*% ris(s fir0s 0'st -o!si"%r &*%! o%rati!) i!

0a!+ -o'!tri%s, s'-* as t*% t*r%% (i!"s of for%i)! %7-*a!)% %7os'r% for $ario's f't'r% ti0%

*ori;o!s: tra!sa-tio!s %7os'r%, a--o'!ti!) %7os'r%6, a!" %-o!o0i- %7os'r%.

INDEPENDENCE AND CONFLICT OF INTEREST:

I! fi!a!-ia ris( 0a!a)%0%!t, it is i0orta!t t*at t*% fi!a!-ia ris( 0a!a)%0%!t "%art0%!t a!"

t*% %0o+%%s &*o &or( &it*i! it ar% !ot s'%r$is%" #+ t*os% r%so!si#% for 0a(i!) t*%

"%-isio!s for t*% -o0a!+ i!$o$i!) fi!a!-ia ris(. T*is a$oi"s ris(s of -o!fi-ts of i!t%r%st

#%t&%%! t*% fi!a!-ia ris( 0a!a)%0%!t "%art0%!t a!" 0%0#%rs of t*% #oar" of "ir%-tors or

s%!ior 0a!a)%0%!t &*o 0i)*t tr+ to i!f'%!-% oi-+ &it* t*r%at%!%" or i0i%" <o# a-tio!s if

0%0#%rs of t*% "%art0%!t "o !ot "o &*at t*%+ ar% as(%" to "o. E0o+%%s i! t*% fi!a!-ia ris(

0a!a)%0%!t "%art0%!t s*o'" !ot tra!sf%r to a "%art0%!t t*at 0a(%s t*% fi!a!-ia i!$%st0%!t

"%-isio!s for t*% -o0a!+. T*is is a!ot*%r oi-+ to a$oi" -o!fi-ts of i!t%r%st.

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http://www.iijournals.com/doi/abs/10.3905/jpm.1997.409611



http://www.iijournals.com/doi/abs/10.3905/jpm.1997.409611




MANAGMENT]


THE IMPORTANT ROLES WITHIN A FINANCIAL MANAGEMENT SYSTEM:

A! or)a!i;atio!s fi!a!-ia 0a!a)%0%!t a+s a -riti-a ro% i! t*% fi!a!-ia s'--%ss of a

#'si!%ss. T*%r%for%, a! or)a!i;atio! s*o'" -o!si"%r fi!a!-ia 0a!a)%0%!t a (%+ -o0o!%!t of

t*% )%!%ra 0a!a)%0%!t of t*% or)a!i;atio!. Fi!a!-ia 0a!a)%0%!t i!-'"%s t*% ta-ti-a a!"

strat%)i- )oas r%at%" to t*% fi!a!-ia r%so'r-%s of t*% #'si!%ss. So0% of t*% s%-ifi- ro%s

i!-'"%" i! fi!a!-ia 0a!a)%0%!t s+st%0s i!-'"% a--o'!ti!), #oo((%%i!), a--o'!ts a+a#%

a!" r%-%i$a#%, i!$%st0%!t oort'!iti%s a!" ris(.

ACCOUNTING AND BOOK KEEING:

W*%! %sta#is*i!) a!+ fi!a!-ia 0a!a)%0%!t s+st%0, a #'si!%ss !%%"s to "%t%r0i!% if t*%

0a!a)%0%!t of t*% s+st%0 &i o--'r i!1*o's% or if it &i 's% a! o'tsi"% %!tit+. A!+ a--o'!ti!)

s+st%0 s*o'" 0%as'r%, i"%!tif+, r%-or" a!" -o00'!i-at% a of t*% fi!a!-ia i!for0atio! a#o't

t*% or)a!i;atio!. T*% fo'!"atio! of a! %ff%-ti$% a--o'!ti!) s+st%0 is )oo" #oo((%%i!). A

#oo((%%%r )%ts t*% -o0%t% a!" a--'rat% fi!a!-ia i!for0atio! to t*% a--o'!ta!t. W*i% t*%

a--o'!ti!) s+st%0 oo(s at t*% o$%ra fi!a!-ia i-t'r% of t*% or)a!i;atio!, #oo((%%i!) "%as

&it* t*% s%-ifi- tra!sa-tio!s t*at ta(% a-% o! a "a+1to1"a+ #asis.

ACCOUNTS AYABLES AND ACCOUNTS RECEIVABLES:

A--o'!t a+a#%s ro$i"% a! or)a!i;atio! &it* i!for0atio! a#o't a--o'!ts &it* s'i%rs. T*is

i!-'"%s t*% o'tsta!"i!) s'0s of 0o!%+ o&%" to t*%s% s'i%rs. A""itio!a+, a--o'!t a+a#%s

&i s*o& t*% -ost of it%0s 'r-*as%", *o& t*% or)a!i;atio! 0a"% a+0%!ts i! t*% ast a!"

"%tais a#o't t*% tra!sa-tio!. A--o'!ts a+a#% &i aso s*o& t*% &or(fo& a!" ao& t*%

#'si!%ss to aro$% i!$oi-%s, '"at% r%-or"s a!" 0ai!tai! a! i!t%)rat%" "o-'0%!t 0a!a)%0%!t

s+st%0. A--o'!t r%-%i$a#%s, o! t*% ot*%r *a!", r%-or"s &*at -'sto0%rs o&% t*% or)a!i;atio! for ro"'-ts a!" s%r$i-%s 'r-*as%". A! a--o'!ts r%-%i$a#%s s+st%0 -a! (%% tra-( of i!$oi-%s,

a+0%!ts, ro"'-% r%0i!"%r %tt%rs for o'tsta!"i!) a+0%!ts a!" -a-'at% i!t%r%st for #aa!-%s

o&%". A""itio!a+, a--o'!ts r%-%i$a#%s -a! *% t*% or)a!i;atio! r%-o$%r ast "'% a--o'!ts

#%for% t*%+ #%-o0% #a" "%#ts.


10




MANAGMENT]


INVESTMENT OORTUNITIES:

A!ot*%r as%-t t*% fi!a!-ia 0a!a)%0%!t s+st%0 r%at%s to fi!"i!) oort'!iti%s t*at -a!

-o0%0%!t or #%!%fit t*% or)a!i;atio!. A #'si!%ss -a! o!+ %7oit t*%s% oort'!iti%s if t*%

or)a!i;atio! %ffi-i%!t+ a!" %ff%-ti$%+ fi!"s t*% oort'!iti%s a!" *as t*% a#iit+ to a+ for t*%

"%sir%" a-'isitio!s. 9+ -ar%f'+ -o!si"%ri!) t*% "iff%r%!t as%-ts of t*% fi!a!-ia 0a!a)%0%!t

s+st%0, a #'si!%ss -a! %$a'at% its o$%ra fi!a!-ia *%at* a!" "%t%r0i!% its a#iit+ to i!$%st i!

ot%!tia oort'!iti%s.

RISK:

A #'si!%ss aso 0'st -ar%f'+ %$a'at% ris(. A ri0ar+ )oa of t*% fi!a!-ia 0a!a)%0%!t s+st%0

is to 0i!i0i;% ris(s for t*% or)a!i;atio! #+ i0%0%!ti!) strat%)i%s t*at *% t*% #'si!%ss to

-o'!t%ra-t '!for%s%%! ia#iiti%s. T*% fi!a!-ia 0a!a)%0%!t s+st%0 s*o'" i!-'"% a"%'at%

i!s'ra!-% for ro%rt+, %'i0%!t a!" (%+ %0o+%%s. A""itio!a+, #'")%ti!) for 'art%r+ a!"

+%ar+ &or(i!) -aita *%s to 0i!i0i;% ot%!tia fi!a!-ia ris( for t*% or)a!i;atio!. F'rt*%r,

-o!troi!) "%#t a!" %sta#is*i!) a -r%"it s+st%0 &it* s'i%rs a!" fi!a!-ia i!stit'tio!s *%s to

0i!i0i;% fi!a!-ia ris( #+ ao&i!) t*% #'si!%ss o%ratio!a f%7i#iit+ i! t*% %$%!t t*% #'si!%ss

%7%ri%!-%s -as* fo& ro#%0s.

POLICIES:

9+ i0%0%!ti!) so'!" fi!a!-ia ris( 0a!a)%0%!t oi-i%s, -o0a!i%s '!"%rsta!" t*%+ -a!8t

r%+ o! '-( to r'! t*%ir #'si!%ss%s a!" 0a(% 0o!%+. For a -o0a!+, t*% roa" to ri-*%s oft%!

)o%s t*ro')* a s%ri%s of o%ratio!a a"<'st0%!ts. T*%s% r%at% to oi-i%s ai0%" at -*%-(i!)

-'sto0%rs8 -r%"it s-or%s a!" fi!a!-ia rofi%s, as &% as 0o!itori!) t*% stat% of t*% %-o!o0+ to

r%$i%&i!) %rio"s of '!-%rtai!t+ a!" so&"o&!. Fi!a!-ia ris( 0a!a)%0%!t ro-%"'r%s asoi!$o$% t*% -o!ti!'a %$a'atio! of #'si!%ss art!%rs8 a--o'!ti!) stat%0%!ts ao!) &it*

rofita#iit+ a!" so$%!-+ ratios.

TOOLS:


11




MANAGMENT]


/o0a!i%s r%+ o! $ario's toos a!" stat%1of1t*%1art t%-*!oo)+ to tra-( a!" r%0%"+ fi!a!-ia

ris(s .T*% toos of t*% tra"% i!-'"% ris( 0a!a)%0%!t ai-atio!s= -r%"it a"<'"i-atio! a!"

%!"i!) 0a!a)%0%!t s+st%0 soft&ar%, aso (!o&! as /ALMS= fi!a!-ia a!a+sis soft&ar%= a!"

i!for0atio! r%tri%$a or s%ar-* ai-atio!s. Ot*%r toos i!-'"% 0ai!fra0% -o0't%rs, -'sto0%r

r%atio!s*i 0a!a)%0%!t soft&ar% a!" %!t%rris% r%so'r-% a!!i!) ro)ra0s.

T*% i!str'0%!ts a!" toos, t*ro')* &*i-* -r%"it ris( 0a!a)%0%!t is -arri%" o't, ar% "%tai%"

#%o&:

a? E7os'r% /%ii!)s: Pr'"%!tia Li0it is i!(%" to /aita F'!"s sa+ 56C for i!"i$i"'a

#orro&%r %!tit+, 3C for a )ro' &it* a""itio!a 53C for i!frastr'-t'r% ro<%-ts '!"%rta(%! #+

t*% )ro', T*r%s*o" i0it is fi7%" at a %$% o&%r t*a! Pr'"%!tia E7os'r%= S'#sta!tia

E7os'r%, &*i-* is t*% s'0 tota of t*% %7os'r%s #%+o!" t*r%s*o" i0it s*o'" !ot %7-%%"

33C to 33C of t*% /aita F'!"s of t*% #a!( >i.%. si7 to %i)*t ti0%s?.

#? R%$i%&R%!%&a: M'ti1ti%r /r%"it Aro$i!) A't*orit+, -o!stit'tio! &is% "%%)atio! of

o&%rs, Hi)*%r "%%)at%" o&%rs for #%tt%r1rat%" -'sto0%rs= "is-ri0i!ator+ ti0% s-*%"'% for

r%$i%&r%!%&a, H'r"% rat%s a!" 9%!-* 0ar(s for fr%s* %7os'r%s a!" %rio"i-it+ for r%!%&a.

-? Ris( Rati!) Mo"%: S%t ' -o0r%*%!si$% ris( s-ori!) s+st%0 o! a si7 to !i!% oi!t s-a%.

/%ar+ "%fi!% rati!) t*r%s*o"s a!" r%$i%& t*% rati!)s %rio"i-a+ r%f%ra#+ at *af +%ar+

i!t%r$as. Rati!) 0i)ratio! is to #% 0a%" to %sti0at% t*% %7%-t%" oss.

"? Ris( #as%" s-i%!tifi- ri-i!): Li!( oa! ri-i!) to %7%-t%" oss. Hi)*1ris( -at%)or+ #orro&%rs

ar% to #% ri-%" *i)*. 9'i" *istori-a "ata o! "%fa't oss%s. Ao-at% -aita to a#sor# t*%

'!%7%-t%" oss. A"ot t*% RARO/ fra0%&or(.

%? Portfoio Ma!a)%0%!t T*% !%%" for -r%"it ortfoio 0a!a)%0%!t %0a!at%s fro0 t*% !%-%ssit+

to oti0i;% t*% #%!%fits asso-iat%" &it* "i$%rsifi-atio! a!" to r%"'-% t*% ot%!tia a"$%rs% i0a-t

of -o!-%!tratio! of %7os'r%s to a arti-'ar #orro&%r, s%-tor or i!"'str+. Sti'at% 'a!titati$%

-%ii!) o! a))r%)at% %7os'r% o! s%-ifi- rati!) -at%)ori%s, "istri#'tio! of #orro&%rs i! $ario's

i!"'str+, #'si!%ss )ro' a!" -o!"'-t rai" ortfoio r%$i%&s.


1"




MANAGMENT]


f? Loa! R%$i%& M%-*a!is01 t*is s*o'" #% "o!% i!"%%!"%!t of -r%"it o%ratio!s. It is aso

r%f%rr%" as /r%"it A'"it -o$%ri!) r%$i%& of sa!-tio! ro-%ss, -o0ia!-% stat's, r%$i%& of ris(

rati!), i-(' of &ar!i!) si)!as a!" r%-o00%!"atio! of -orr%-ti$% a-tio! &it* t*% o#<%-ti$% of

i0ro$i!) -r%"it 'ait+. It s*o'" tar)%t a oa!s a#o$% -%rtai! -'t1off i0it %!s'ri!) t*at at %ast

23C to 3C of t*% ortfoio is s'#<%-t%" to LRM i! a +%ar so as to %!s'r% t*at a 0a<or -r%"it

ris(s %0#%""%" i! t*% #aa!-% s*%%t *a$% #%%! tra-(%". 9as%" o! ris( rati!), %t-ar% for0'at%".

TYPES OF RISK:

Ris( -a! #% r%f%rr%" as t*% -*a!-%s of *a$i!) a! '!%7%-t%" or !%)ati$% o't-o0%. A!+ a-tio! or

a-ti$it+ t*at %a"s to oss of a!+ t+% -a! #% t%r0%" as ris(. T*%r% ar% "iff%r%!t t+%s of ris(s t*at

a fir0 0i)*t fa-% a!" !%%"s to o$%r-o0%. Wi"%+, ris(s -a! #% -assifi%" i!to t*r%%

t+%s: 9'si!%ss Ris(, No!19'si!%ss Ris( a!" Fi!a!-ia Ris(.

5. 9'si!%ss Ris(: T*%s% t+%s of ris(s ar% ta(%! #+ #'si!%ss %!t%rris%s t*%0s%$%s i! or"%r

to 0a7i0i;% s*ar%*o"%r $a'% a!" rofits. As for %7a0%: /o0a!i%s '!"%rta(% *i)*

-ost ris(s i! 0ar(%ti!) to a'!-* !%& ro"'-t i! or"%r to )ai! *i)*%r sa%s.

4. No!1 9'si!%ss Ris(: T*%s% t+%s of ris(s ar% !ot '!"%r t*% -o!tro of fir0s. Ris(s t*at

aris% o't of oiti-a a!" %-o!o0i- i0#aa!-%s -a! #% t%r0%" as !o!1#'si!%ss ris(.

2. Fi!a!-ia Ris(: Fi!a!-ia Ris( as t*% t%r0 s'))%sts is t*% ris( t*at i!$o$%s fi!a!-ia oss

to fir0s. Fi!a!-ia ris( )%!%ra+ aris%s "'% to i!sta#iit+ a!" oss%s i! t*% fi!a!-ia

0ar(%t -a's%" #+ 0o$%0%!ts i! sto-( ri-%s, -'rr%!-i%s, i!t%r%st rat%s a!" 0or%.

TYPES OF FINANCIAL RISKS:

Fi!a!-ia ris( is o!% of t*% *i)*1riorit+ ris( t+%s for %$%r+ #'si!%ss. Fi!a!-ia ris( is -a's%"

"'% to 0ar(%t 0o$%0%!ts a!" 0ar(%t 0o$%0%!ts -a! i!-'"% *ost of fa-tors. 9as%" o! t*is,


1#

http://www.simplilearn.com/resources/finance-management-videos/corporate-finance-part-3-rrt3co36vd113

http://www.simplilearn.com/resources/finance-management-articles/financial-risk-management-rar24


http://www.simplilearn.com/resources/finance-management-videos/corporate-finance-part-3-rrt3co36vd113





MANAGMENT]


fi!a!-ia ris( -a! #% -assifi%" i!to $ario's t+%s s'-* as Mar(%t Ris(, /r%"it Ris(, Li'i"it+

Ris(, O%ratio!a Ris( a!" L%)a Ris(.

MARKET RISK:

Mar(%t Ris( 0a+ #% "%fi!%" as t*% ossi#iit+ of oss to #a!( -a's%" #+ t*% -*a!)%s i! t*%

0ar(%t $aria#%s. It is t*% ris( t*at t*% $a'% of o!1off1#aa!-% s*%%t ositio!s &i #% a"$%rs%+

aff%-t%" #+ 0o$%0%!ts i! %'it+ a!" i!t%r%st rat% 0ar(%ts, -'rr%!-+ %7-*a!)% rat%s a!"

-o00o"it+ ri-%s.

T*is t+% of ris( aris%s "'% to 0o$%0%!t i! ri-%s of fi!a!-ia i!str'0%!t. Mar(%t ris( -a! #%

-assifi%" as Dir%-tio!a Ris( a!" No! 1 Dir%-tio!a Ris(. Dir%-tio!a ris( is -a's%" "'% to

0o$%0%!t i! sto-( ri-%, i!t%r%st rat%s a!" 0or%. No!1 Dir%-tio!a ris( o! t*% ot*%r *a!" -a! #%

$oatiit+ ris(s.

CREDIT RISK:

/r%"it Ris( is t*% ot%!tia t*at a #a!( #orro&%r-o'!t%r art+ fais to 0%%t t*% o#i)atio!s o!

a)r%%" t%r0s. T*%r% is a&a+s s-o% for t*% #orro&%r to "%fa't fro0 *is -o00it0%!ts for o!% or

t*% ot*%r r%aso! r%s'ti!) i! -r+staisatio! of -r%"it ris( to t*% #a!(. T*is t+% of ris( aris%s &*%!

o!% fais to f'fi t*%ir o#i)atio!s to&ar"s t*%ir -o'!t%r arti%s.T*%s% oss%s -o'" ta(% t*% for0

o'tri)*t "%fa't or at%r!ati$%+, oss%s fro0 -*a!)%s i! ortfoio $a'% arisi!) fro0 a-t'a or

%r-%i$%" "%t%rioratio! i! -r%"it 'ait+ t*at is s*ort of "%fa't.

/r%"it ris( -a! #% -assifi%" i!to So$%r%i)! Ris( a!" S%tt%0%!t Ris(. So$%r%i)! ris( 's'a+

aris%s "'% to "iffi-'t for%i)! %7-*a!)% oi-i%s. S%tt%0%!t ris( o! t*% ot*%r *a!" aris%s &*%!

o!% art+ 0a(%s t*% a+0%!t &*i% t*% ot*%r art+ fais to f'fi t*% o#i)atio!s.

T*% o#<%-ti$% of -r%"it ris( 0a!a)%0%!t is to 0i!i0i;% t*% ris( a!" 0a7i0i;% #a!( s ris( ‟

a"<'st%" rat% of r%t'r! #+ ass'0i!) a!" 0ai!tai!i!) -r%"it %7os'r% &it*i! t*% a--%ta#%

ara0%t%rs.


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MANAGMENT]


T*% 0a!a)%0%!t of -r%"it ris( i!-'"%s:

a? M%as'r%0%!t t*ro')* -r%"it rati!) s-ori!),

#? 'a!tifi-atio! t*ro')* %sti0at% of %7%-t%" oa! oss%s,

-? Pri-i!) o! a s-i%!tifi- #asis a!"

"? /o!troi!) t*ro')* %ff%-ti$% Loa! R%$i%& M%-*a!is0 a!" Portfoio Ma!a)%0%!t.

TOOLS OF CREDIT RISK MANAGEMENT:

a? E7os'r% /%ii!)s:Pr'"%!tia Li0it is i!(%" to /aita F'!"s a!"t*r%s*o" i0it is fi7%"

at a %$% o&%r t*a! Pr'"%!tia E7os'r%= S'#sta!tia E7os'r%, &*i-* is t*% s'0 tota of

t*% %7os'r%s #%+o!" t*r%s*o" i0it s*o'" !ot %7-%%" 33C to 33C of t*% /aita

F'!"s of t*% #a!( >i.%. si7 to %i)*t ti0%s?.

#? R%$i%&R%!%&a: M'ti1ti%r /r%"it Aro$i!) A't*orit+, -o!stit'tio! &is% "%%)atio! of

o&%rs, Hi)*%r "%%)at%" o&%rs for #%tt%r1rat%" -'sto0%rs=

-? Ris( Rati!) Mo"%: S%t ' -o0r%*%!si$% ris( s-ori!) s+st%0 o! a si7 to !i!% oi!t

s-a%. /%ar+ "%fi!% rati!) t*r%s*o"s a!" r%$i%& t*% rati!)s %rio"i-a+ r%f%ra#+ at

*af +%ar+ i!t%r$as. Rati!) 0i)ratio! is to #% 0a%" to %sti0at% t*% %7%-t%" oss.

"? Ris( #as%" s-i%!tifi- ri-i!): Li!( oa! ri-i!) to %7%-t%" oss. Hi)*1ris( -at%)or+

#orro&%rs ar% to #% ri-%" *i)*. 9'i" *istori-a "ata o! "%fa't oss%s. Ao-at% -aita to

a#sor# t*% '!%7%-t%" oss. A"ot t*% RARO/ fra0%&or(.

%? Portfoio Ma!a)%0%!t T*% !%%" for -r%"it ortfoio 0a!a)%0%!t %0a!at%s fro0 t*%

!%-%ssit+ to oti0i;% t*% #%!%fits asso-iat%" &it* "i$%rsifi-atio! a!" to r%"'-% t*%

ot%!tia a"$%rs% i0a-t of -o!-%!tratio! of %7os'r%s to a arti-'ar #orro&%r, s%-tor or

i!"'str+. Sti'at% 'a!titati$% -%ii!) o! a))r%)at% %7os'r% o! s%-ifi- rati!)


15




MANAGMENT]


-at%)ori%s, "istri#'tio! of #orro&%rs i! $ario's i!"'str+, #'si!%ss )ro' a!" -o!"'-t

rai" ortfoio r%$i%&s.

f? Loa! R%$i%& M%-*a!is0 T*is s*o'" #% "o!% i!"%%!"%!t of -r%"it o%ratio!s. It is aso

r%f%rr%" as /r%"it A'"it -o$%ri!) r%$i%& of sa!-tio! ro-%ss, -o0ia!-% stat's, r%$i%&

of ris( rati!), i-(' of &ar!i!) si)!as a!" r%-o00%!"atio! of -orr%-ti$% a-tio! &it*

t*% o#<%-ti$% of i0ro$i!) -r%"it 'ait+. It s*o'" tar)%t a oa!s a#o$% -%rtai! -'t1off

i0it %!s'ri!) t*at at %ast 23C to 3C of t*% ortfoio is s'#<%-t%" to LRM i! a +%ar so

as to %!s'r% t*at a 0a<or -r%"it ris(s %0#%""%" i! t*% #aa!-% s*%%t *a$% #%%! tra-(%".

LI%UIDITY RISK:

9a!( D%osits )%!%ra+ *a$% a 0'-* s*ort%r -o!tra-t'a 0at'rit+ t*a! oa!s a!" i'i"it+

0a!a)%0%!t !%%"s to ro$i"% a -'s*io! to -o$%r a!ti-iat%" "%osit &it*"ra&as. Li'i"it+ is

t*% a#iit+ to %ffi-i%!t+ a--o00o"at% "%osit as aso r%"'-tio! i! ia#iiti%s a!" to f'!" t*% oa!

)ro&t* a!" ossi#% f'!"i!) of t*% off1#aa!-% s*%%t -ai0s.

T*is t+% of ris( aris%s o't of i!a#iit+ to %7%-'t% tra!sa-tio!s. Li'i"it+ ris( -a! #% -assifi%"

i!to Ass%t Li'i"it+ Ris( a!" F'!"i!) Li'i"it+ Ris(. Ass%t Li'i"it+ ris( aris%s %it*%r "'% to

i!s'ffi-i%!t #'+%rs or i!s'ffi-i%!t s%%rs a)ai!st s% or"%rs a!" #'+ or"%rs r%s%-ti$%+.

OPERATIONAL RISK:

A&a+s #a!(s i$% &it* t*% ris(s arisi!) o't of *'0a! %rror, fi!a!-ia fra'" a!" !at'ra "isast%rs.

T*% r%-%!t *a%!i!)s s'-* as WT/ tra)%"+, 9ari!)s "%#a-% %t-. *as *i)*i)*t%" t*% ot%!tia

oss%s o! a--o'!t of o%ratio!a ris(. E7o!%!tia )ro&t* i! t*% 's% of t%-*!oo)+ a!" i!-r%as%

i! )o#a fi!a!-ia i!t%r1i!(a)%s ar% t*% t&o ri0ar+ -*a!)%s t*at -o!tri#'t%" to s'-* ris(s.

O%ratio!a ris(, t*o')* "%fi!%" as a!+ ris( t*at is !ot -at%)ori;%" as 0ar(%t or -r%"it ris(, is t*%

ris( of oss arisi!) fro0 i!a"%'at% or fai%" i!t%r!a ro-%ss%s, %o% a!" s+st%0s or fro0

%7t%r!a %$%!ts. I! or"%r to 0iti)at% t*is, i!t%r!a -o!tro a!" i!t%r!a a'"it s+st%0s ar% 's%" as

t*% ri0ar+ 0%a!s.


16




MANAGMENT]


T*is t+% of ris( aris%s o't of o%ratio!a fai'r%s s'-* as 0is0a!a)%0%!t or t%-*!i-a fai'r%s.

O%ratio!a ris( -a! #% -assifi%" i!to Fra'" Ris( a!" Mo"% Ris(. Fra'" ris( aris%s "'% to a-(

of -o!tros a!" Mo"% ris( aris%s "'% to i!-orr%-t 0o"% ai-atio!.

Ris( %"'-atio! for fa0iiari;i!) t*% -o0%7 o%ratio!s at a %$%s of staff -a! aso r%"'-%

o%ratio!a ris(. I!s'ra!-% -o$%r is o!% of t*% i0orta!t 0iti)ators of o%ratio!a ris(.

O%ratio!a ris( %$%!ts ar% asso-iat%" &it* &%a( i!(s i! i!t%r!a -o!tro ro-%"'r%s. T*% (%+ to

0a!a)%0%!t of o%ratio!a ris( i%s i! t*% #a!( s a#iit+ to ass%ss its ro-%ss for $'!%ra#iit+‟

a!" %sta#is* -o!tros as &% as saf%)'ar"s &*i% ro$i"i!) for '!a!ti-iat%" &orst1-as%

s-%!arios.

LEGAL RISK:

T*is t+% of fi!a!-ia ris( aris%s o't of %)a -o!strai!ts s'-* as a&s'its. W*%!%$%r a -o0a!+

!%%"s to fa-% fi!a!-ia os%s o't of %)a ro-%%"i!)s, it is %)a ris(.

RISK MANAGEMENT STEPS AND TOOLS:

T*% ris( 0a!a)%0%!t st%s ar%:

5. Esta#is*i!) )oas a!" -o!t%7t >i.%. t*% ris( %!$iro!0%!t?,

4. I"%!tif+i!) ris(s,

2. A!a+si!) t*% i"%!tifi%" ris(s,

. Ass%ssi!) or %$a'ati!) t*% ris(s,

6. Tr%ati!) or 0a!a)i!) t*% ris(s,

. Mo!itori!) a!" r%$i%&i!) t*% ris(s a!" t*% ris( %!$iro!0%!t r%)'ar+, a!"

B. /o!ti!'o's+ -o00'!i-ati!), -o!s'ti!) &it* sta(%*o"%rs a!" r%orti!).

PROCESS OF RISK MANAGEMENT:


1=




MANAGMENT]


To o$%r-o0% t*% ris( a!" to 0a(% #a!(i!) f'!-tio! &%, t*%r% is a !%%" to 0a!a)% a (i!"s of

ris(s asso-iat%" &it* t*% #a!(i!). Ris( 0a!a)%0%!t #%-o0%s o!% of t*% 0ai! f'!-tio!s of a!+

#a!(i!) s%r$i-%s ris( 0a!a)%0%!t -o!sists of i"%!tif+i!) t*% ris( a!" -o!troi!) t*%0, 0%a!s

(%%i!) t*% ris( at a--%ta#% %$%. T*%s% %$%s "iff%r fro0 i!stit'tio! to i!stit'tio! a!" -o'!tr+

to -o'!tr+. T*% #asi- o#<%-ti$% of ris( 0a!a)%0%!t is to sta(%*o"%rs= $a'% #+ 0a7i0isi!) t*%

rofit a!" oti0i;i!) t*% -aita f'!"s for %!s'ri!) o!) t%r0 so$%!-+ of t*% #a!(i!)

or)a!isatio!.

To o$%r-o0% t*% ris( a!" to 0a(% #a!(i!) f'!-tio! &%, t*%r% is a !%%" to 0a!a)% a (i!"s of

ris(s asso-iat%" &it* t*% #a!(i!). Ris( 0a!a)%0%!t #%-o0%s o!% of t*% 0ai! f'!-tio!s of a!+

#a!(i!) s%r$i-%s ris( 0a!a)%0%!t -o!sists of i"%!tif+i!) t*% ris( a!" -o!troi!) t*%0, 0%a!s

(%%i!) t*% ris( at a--%ta#% %$%. T*%s% %$%s "iff%r fro0 i!stit'tio! to i!stit'tio! a!" -o'!tr+

to -o'!tr+. T*% #asi- o#<%-ti$% of ris( 0a!a)%0%!t is to sta(%*o"%rs= $a'% #+ 0a7i0isi!) t*%

rofit a!" oti0i;i!) t*% -aita f'!"s for %!s'ri!) o!) t%r0 so$%!-+ of t*% #a!(i!)

or)a!isatio!. I! t*% ro-%ss of ris( 0a!a)%0%!t foo&i!) f'!-tio!s -o0ris%s:

• Ris( i"%!tifi-atio!

• Ris( 0%as'r%0%!t or 'a!tifi-atio!

• Ris( -o!tro

• Mo!itori!) a!" r%$i%&i!)

• A!a+s% t*% ris(

• E$a'at% t*% ris(

• Mo!itori!) t*% ris(

RISK IDENTIFICATION:


1>




MANAGMENT]


T*% ris( i"%!tifi-atio! i!$o$%s:

5. t*% '!"%rsta!"i!) t*% !at'r% of $ario's (i!"s of ris(s.

4. t*% -ir-'0sta!-%s &*i-* %a" a sit'atio! to #%-o0% a ris( sit'atio! a!"

2. -a's%s "'% to &*i-* t*% ris( -a! aris%.

R+- %/01+2+3/1+40:

Ris( 'a!tifi-atio! is a! ass%ss0%!t of t*% "%)r%% of t*% ris( &*i-* a arti-'ar tra!sa-tio! or a!

a-ti$it+ is %7os%" to. T*o')* t*% %7a-t 0%as'r%0%!t of ris( is !ot ossi#% #'t t*% %$% of ris(

-a! #% "%t%r0i!%" &it* t*% *% of ris( rati!) 0o"%s.

Ris( /o!tro: Ris( -o!tro is t*% sta)% &*%r% t*% #a!( or i!stit'tio!s ta(% st%s to -o!tro t*% ris(

&it* t*% *% of $ario's toos.

A!a+s% t*% ris(:Ris( a!a+sis i!$o$%s t*% -o!si"%ratio! of t*% so'r-% of ris(, t*% -o!s%'%!-%

a!" i(%i*oo" to %sti0at% t*% i!*%r%!t or '!rot%-t%" ris( &it*o't -o!tros i! a-%. It aso

i!$o$%s i"%!tifi-atio! of t*% -o!tros, a! %sti0atio! of t*%ir %ff%-ti$%!%ss a!" t*% r%s'ta!t %$%

of ris( &it* -o!tros i! a-% >t*% rot%-t%", r%si"'a or -o!tro%" ris(?. 'aitati$%, s%0i1

'a!titati$% a!" 'a!titati$% t%-*!i'%s ar% a a--%ta#% a!a+sis t%-*!i'%s "%%!"i!) o! t*%

ris(, t*% 'ros% of t*% a!a+sis a!" t*% i!for0atio! a!" "ata a$aia#%.

Oft%! 'aitati$% or s%0i1'a!titati$% t%-*!i'%s -a! #% 's%" for s-r%%!i!) ris(s &*%r%as *i)*%r

ris(s ar% #%i!) s'#<%-t%" to 0or% %7%!si$% 'a!titati$% t%-*!i'%s as r%'ir%". Ris(s -a! #%

%sti0at%" 'aitati$%+ a!" s%0i1'a!titati$%+ 'si!) toos s'-* as *a;ar" 0atri-%s, ris( )ra*s,

ris( 0atri-%s or 0o!o)ra*s #'t !oti!) t*at t*% ris( 0atri7 is t*% 0ost -o00o!.

E$a'at% t*% ris(:O!-% t*% ris(s *a$% #%%! a!a+s%" t*%+ -a! #% -o0ar%" a)ai!st t*% r%$io's+

"o-'0%!t%" a!" aro$%" to%ra#% ris( -rit%ria. W*%! 'si!) ris( 0atri-%s t*is to%ra#% ris( is

)%!%ra+ "o-'0%!t%" &it* t*% ris( 0atri7. S*o'" t*% rot%-t%" ris( #% )r%at%r t*a! t*% to%ra#%


1




MANAGMENT]


ris( t*%! t*% s%-ifi- ris( !%%"s a""itio!a -o!tro 0%as'r%s or i0ro$%0%!ts i! t*% %ff%-ti$%!%ss

of t*% %7isti!) -o!tros.

T*% "%-isio! of &*%t*%r a ris( is a--%ta#% or !ot a--%ta#% is ta(%! #+ t*% r%%$a!t 0a!a)%r. Aris( 0a+ #% -o!si"%r%" a--%ta#% if for %7a0%:

T*% ris( is s'ffi-i%!t+ o& t*at tr%at0%!t is !ot -o!si"%r%" -ost %ff%-ti$%, or

A tr%at0%!t is !ot a$aia#%, %.). a ro<%-t t%r0i!at%" #+ a -*a!)% of )o$%r!0%!t, or

A s'ffi-i%!t oort'!it+ %7ists t*at o't&%i)*s t*% %r-%i$%" %$% of t*r%at.

MONITORING THE RISK:

It is i0orta!t to '!"%rsta!" t*at t*% -o!-%t of ris( is "+!a0i- a!" !%%"s %rio"i- a!" for0a

r%$i%&. T*% -'rr%!-+ of i"%!tifi%" ris(s !%%"s to #% r%)'ar+ 0o!itor%". N%& ris(s a!" t*%ir

i0a-t o! t*% or)a!i;atio! 0a+ to #% ta(%! i!to a--o'!t. T*is st% r%'ir%s t*% "%s-ritio! of

*o& t*% o't-o0%s of t*% tr%at0%!t &i #% 0%as'r%".

Mi%sto!%s or #%!-*0ar(s for s'--%ss a!" &ar!i!) si)!s for fai'r% !%%" to #% i"%!tifi%".

T*% r%$i%& %rio" is "%t%r0i!%" #+ t*% o%rati!) %!$iro!0%!t >i!-'"i!) %)isatio!?, #'t as a

)%!%ra r'% a -o0r%*%!si$% r%$i%& %$%r+ fi$% +%ars is a! a--%t%" i!"'str+ !or0. T*is is o! t*%

#asis t*at a a!t -*a!)%s ar% s'#<%-t to a! aroriat% -*a!)% ro-%ss i!-'"i!) ris(

ass%ss0%!t.

T*% r%$i%& !%%"s to $ai"at% t*at t*% ris( 0a!a)%0%!t ro-%ss a!" t*% "o-'0%!tatio! is sti

$ai". T*% r%$i%& aso !%%"s to -o!si"%r t*% -'rr%!t r%)'ator+ %!$iro!0%!t a!" i!"'str+

ra-ti-%s &*i-* 0a+ *a$% -*a!)%" si)!ifi-a!t+ i! t*% i!t%r$%!i!) %rio".

T*% or)a!isatio!, -o0%t%!-i%s a!" %ff%-ti$%!%ss of t*% saf%t+ 0a!a)%0%!t s+st%0 s*o'" aso

#% -o$%r%". T*% a!t 0a!a)%0%!t s+st%0s s*o'" *a$% -at'r%" t*%s% -*a!)%s a!" t*% r%$i%&

s*o'" #% s%%! as a #a-( sto.

T*% ass'0tio!s 0a"% i! t*% r%$io's ris( ass%ss0%!t >*a;ar"s, i(%i*oo" a!" -o!s%'%!-%?,

t*% %ff%-ti$%!%ss of -o!tros a!" t*% asso-iat%" 0a!a)%0%!t s+st%0 as &% as %o% !%%" to #%

0o!itor%" o! a! o!1)oi!) #asis to %!s'r% ris( ar% i! fa-t -o!tro%" to t*% '!"%r+i!) -rit%ria.


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MANAGMENT]


TECHNI%UES OF RISK MANAGEMENT:

/ GAP ANALYSIS:

It is a! i!t%r%st rat% ris( 0a!a)%0%!t too #as%" o! t*% #aa!-% s*%%t &*i-* fo-'s%s o! t*%

ot%!tia $aria#iit+ of !%t1i!t%r%st i!-o0% o$%r s%-ifi- ti0% i!t%r$as. I! t*is 0%t*o" a

0at'rit+ r%1ri-i!) s-*%"'% t*at "istri#'t%s i!t%r%st1s%!siti$% ass%ts, ia#iiti%s, a!" off1

#aa!-% s*%%t ositio!s i!to ti0% #a!"s a--or"i!) to t*%ir 0at'rit+ >if fi7%" rat%? or ti0%

r%0ai!i!) to t*%ir !%7t r%1ri-i!) >if foati!) rat%?, is r%ar%". T*%s% s-*%"'%s ar% t*%!

's%" to )%!%rat% i!"i-ators of i!t%r%st1rat% s%!siti$it+ of #ot* %ar!i!)s a!" %-o!o0i- $a'% to

-*a!)i!) i!t%r%st rat%s. Aft%r -*oosi!) t*% ti0% i!t%r$as, ass%ts a!" ia#iiti%s ar% )ro'%"

i!to t*%s% ti0% #'-(%ts a--or"i!) to 0at'rit+ >for fi7%" rat%s? or first ossi#% r%1ri-i!) ti0%

>for f%7i#% rat% s?. T*% ass%ts a!" ia#iiti%s t*at -a! #% r%1ri-%" ar% -a%" rat% s%!siti$%

ass%ts >RSAs? a!" rat% s%!siti$% ia#iiti%s >RSLs? r%s%-ti$%+. I!t%r%st s%!siti$% )a

>DGAP? r%f%-ts t*% "iff%r%!-%s #%t&%%! t*% $o'0% of rat% s%!siti$% ass%t a!" t*% $o'0% of

rat% s%!siti$% ia#iit+ a!" )i$%! #+, GAP RSAs RSLs T*% i!for0atio! o! GAP )i$%s t*%

0a!a)%0%!t a! i"%a a#o't t*% %ff%-ts o! !%t1i!-o0% "'% to -*a!)%s i! t*% i!t%r%st rat%.

Positi$% GAP i!"i-at%s t*at a! i!-r%as% i! f't'r% i!t%r%st rat% &o'" i!-r%as% t*% !%t i!t%r%st

i!-o0% as t*% -*a!)% i! i!t%r%st i!-o0% is )r%at%r t*a! t*% -*a!)% i! i!t%r%st %7%!s%s a!"

$i-% $%rsa. >/'00i!) a!" 9%$%r+, 4335?.

DURATION7GAP:

A!a+sis It is a!ot*%r 0%as'r% of i!t%r%st rat% ris( a!" 0a!a)i!) !%t i!t%r%st i!-o0% "%ri$%" #+

ta(i!) i!to -o!si"%ratio! a i!"i$i"'a -as* i!fo&s a!" o'tfo&s. D'ratio! is $a'% a!" ti0%

&%i)*t%" 0%as'r% of 0at'rit+ of a -as* fo&s a!" r%r%s%!ts t*% a$%ra)% ti0% !%%"%" to

r%-o$%r t*% i!$%st%" f'!"s. D'ratio! a!a+sis -a! #% $i%&%" as t*% %asti-it+ of t*% 0ar(%t $a'%

of a! i!str'0%!t &it* r%s%-t to i!t%r%st rat%. D'ratio! )a >DGAP? r%f%-ts t*% "iff%r%!-%s i! t*%

ti0i!) of ass%t a!" ia#iit+ -as* fo&s a!" )i$%! #+, DGAP DA 1 ' DL. W*%r% DA is t*%

a$%ra)% "'ratio! of t*% ass%ts, DL is t*% a$%ra)% "'ratio! of ia#iiti%s, a!" ' is t*%

ia#iiti%sass%ts ratio. W*%! i!t%r%st rat% i!-r%as%s #+ -o0ara#% a0o'!ts, t*% 0ar(%t $a'% of


"1




MANAGMENT]


ass%ts "%-r%as% 0or% t*a! t*at of ia#iiti%s r%s'ti!) i! t*% "%-r%as% i! t*% 0ar(%t $a'% of

%'iti%s a!" %7%-t%" !%t1i!t%r%st i!-o0% a!" $i-% $%rsa. >/'00i!) a!" 9%$%r+, 4335?

3VALUE AT RISK 8VAR:

It is o!% of t*% !%&%r ris( 0a!a)%0%!t toos. T*% Va'% at Ris( >VaR? i!"i-at%s *o& 0'-* a fir0

-a! os% or 0a(% &it* a -%rtai! ro#a#iit+ i! a )i$%! ti0% *ori;o!. VaR s'00ari;%s fi!a!-ia

ris( i!*%r%!t i! ortfoios i!to a si0% !'0#%r. T*o')* VaR is 's%" to 0%as'r% 0ar(%t ris( i!

)%!%ra, it i!-ororat%s 0a!+ ot*%r ris(s i(% for%i)! -'rr%!-+, -o00o"iti%s, a!" %'iti%s.>Jorio!,

4335?

9RISK ADJUSTED RATE OF RETURN ON CAPITAL 8RAROC:

It )i$%s a! %-o!o0i- #asis to 0%as'r% a t*% r%%$a!t ris(s -o!sist%!t+ a!" )i$%s 0a!a)%rs toos

to 0a(% t*% %ffi-i%!t "%-isio!s r%)ar"i!) ris(r%t'r! tra"%off i! "iff%r%!t ass%ts. As %-o!o0i-

-aita rot%-ts fi!a!-ia i!stit'tio!s a)ai!st '!%7%-t%" oss%s, it is $ita to ao-at% -aita for

$ario's ris(s t*at t*%s% i!stit'tio!s fa-%. Ris( A"<'st%" Rat% of R%t'r! o! /aita >RARO/?

a!a+sis s*o&s *o& 0'-* %-o!o0i- -aita "iff%r%!t ro"'-ts a!" #'si!%ss%s !%%" a!"

"%t%r0i!%s t*% tota r%t'r! o! -aita of a fir0. T*o')* Ris( A"<'st%" Rat% of R%t'r! -a!#%'s%"

to %sti0at% t*% -aita r%'ir%0%!ts for 0ar(%t, -r%"it a!" o%ratio!a ris(s, it is 's%" as a!

i!t%)rat%" ris( 0a!a)%0%!t too >/ro'*+ a!" Ro#%rt, 4335?.

SECURITI;ATION:

It is a ro-%"'r% st'"i%" '!"%r t*% s+st%0s of str'-t'r%" fi!a!-% or -r%"it i!(%" !ot%s.

S%-'riti;atio! of a #a!( s ass%ts a!" oa!s is a "%$i-% for raisi!) !%& f'!"s a!" r%"'-i!) #a!( s‟ ‟

ris( %7os'r%s. T*% #a!( oos a )ro' of i!-o0%1%ar!i!) ass%ts >i(% 0ort)a)%s? a!" s%s

s%-'riti%s a)ai!st t*%s% i! t*% o%! 0ar(%t, t*%r%#+ tra!sfor0i!) ii'i" ass%ts i!to tra"a#% ass%t

#a-(%" s%-'riti%s. As t*% r%t'r!s fro0 t*%s% s%-'riti%s "%%!" o! t*% -as* fo&s of t*% '!"%r+i!)

ass%ts, t*% #'r"%! of r%a+0%!t is tra!sf%rr%" fro0 t*% ori)i!ator to t*%s% oo%" ass%ts.

2SENSITIVITY ANALYSIS:


""




MANAGMENT]


IT IS VERY USEFUL WHEN att%0ti!) to "%t%r0i!% t*% i0a-t, t*% a-t'a o't-o0% of a

arti-'ar $aria#% &i *a$% if it "iff%rs fro0 &*at &as r%$io's+ ass'0%". 9+ -r%ati!) a )i$%!

s%t of s-%!arios, t*% a!a+st -a! "%t%r0i!% *o& -*a!)%s i! o!% $aria#%>s? &i i0a-t t*% tar)%t

$aria#%.

< INTERNAL RATING SYSTEM:

A! i!t%r!a rati!) s+st%0 *%s fi!a!-ia i!stit'tio!s 0a!a)% a!" -o!tro -r%"it ris(s t*%+ fa-%

t*ro')* %!"i!) a!" ot*%r o%ratio!s #+ )ro'i!) a!" 0a!a)i!) t*% -r%"it1&ort*i!%ss of

#orro&%rs a!" t*% 'ait+ of -r%"it tra!sa-tio!s.

RISK MONITORING:

I! ris( 0o!itori!) t*% #a!(%rs *a$% to fi7 ' t*% ara0%t%rs o! &*i-* t*% tra!sa-tio! is to #%

t%st%" to #% s'r% t*at t*%r% is !o ris( to $ia#% %7ist%!-% of t*% fi!a!-ia '!it or i!$%st0%!t of t*%

#a!(.

RISK MANAGEMENT IN *ANK: *ASEL COMMITTEE APPROACH:

I! or"%r to *% t*% #a!(s to r%-o)!i;% t*% "iff%r%!t (i!"s of ris(s a!" to ta(% a"%'at% st%s to

o$%r-o0% t*% '!"%r -aitai;atio! of #a!(s ass%ts a!" %ss%! t*% -r%"it a!" o%ratio!a ris(s

fa-%" #+ #a!(s. 9a!(s of I!t%r!atio!a S%tt%0%!t >9IS? s%t ' 9as% /o00itt%% o! #a!(i!)

s'%r$isio! i! 5, &*i-* iss'%" )'i"%i!%s for '"ati!) ris( 0a!a)%0%!t i! #a!(s. T*%s%

)'i"%i!%s #ro')*t a#o't sta!"ar"i;atio! a!" '!i$%rsai;atio! a0o!) t*% )o#a #a!(i!)

-o00itt%% for ris( 0a!a)%0%!t a!" s%%( to rot%-t t*% i!t%r%st of t*% "%ositorss*ar%*o"%rs of

t*% #a!(. As %r t*% )'i"%i!%s iss'%", -aita a"%'a-+ &as -o!si"%r%" a!a-%a for ris(

0a!a)%0%!t a!" a #a!(s &%r% a"$is%" to *a$% /aita A"%'a-+ Ratio >/AR? at at %ast C.

/AR is t*% ratio of -aita to ris( &%i)*t%" ass%ts a!" it ro$i"%s t*% -'s*io! to t*% "%ositors i!

-as% of #a!(r't-+. I! Ja!'ar+ 5, t*% 9as% /o00itt%% roos%" a !%& -aita a--or", &*i-*

is (!o&! as 9as% II.


"#




MANAGMENT]


A so'!" fra0%&or( for 0%as'ri!) a!" 'a!tif+i!) t*% ris( asso-iat%" &it* #a!(i!) o%ratio!s

't #+ it. T*% %0*asis of N%& 9as% A--or" is o! f%7i#iit+, %ffi-i%!t o%ratio!s a!" *i)*%r

r%$%!'%s for #a!(s &it* f' a-(!o&%")%0%!t of ris(s. T*% N%& A--or" 0a(%s -%ar "isti!-tio!

#%t&%%! t*% -r%"it ris(, 0ar(%t ris( a!" o%ratio!a ris( sti'ati!) ass%ss0%!t of ris( &%i)*ta)%

-o$%ri!) a t*% t*r%% -at%)ori%s s%arat%+. Aso it ro$i"%s a ra!)% of otio!s for "%t%r0i!) t*%

-aita r%'ir%0%!ts for -r%"it ris( a!" o%ratio!a ris(. 9a!(s ar% r%'ir%" to s%%-t aroa-*%s

t*at ar% 0ost aroriat% for t*%ir o%ratio!s a!" fi!a!-ia 0ar(%ts. T*% fi!ais%" 9as% II A--or"

&as r%%as%" i! J'!% 433. T*% 0i" t%r0 r%$i%& of a!!'a oi-+ for t*% +%ar 43313B fro0 t*%

R%s%r$% 9a!( of I!"ia >R9I? r%$%a%" t*at t*% i!t%!"%" "at% for a"otio! of 9as% II, i.%. Mar-*

433B, *a" to #% osto!%" #+ t&o +%ars, ta(i!) i!to -o!si"%ratio! t*% sta(% of r%ar%"!%ss of

t*% #a!(i!) s+st%0 i! t*% -o'!tr+. T*is a--or" is #as%" o! t*r%% iars, $i;.

Piar I: Mi!i0'0 /aita R%'ir%0%!t

Piar II: S'%r$isor+ R%$i%&

Piar III: Mar(%t Dis-ii!%

MINIMUM CAPITAL RE%UIREMENT 8PILLAR I:

T*% Mi!i0'0 /aita R%'ir%0%!t >M/R? is s%t #+ t*% -aita ratio &*i-* is "%fi!%" as >Tota

/aita 1 Ti%r I Ti%r II Ti%r III? -r%"it ris( 0ar(%t ris( o%ratio!a ris(?. 9as% I ro$i"%"

for o!+ a -r%"it ris( -*ar)%. A 0ar(%t ris( &as i0%0%!t%" i! 5 a0%!"0%!ts. I! t*% i!itia

sta)%, a #a!(s ar% r%'ir%" to foo& sta!"ar"i;%" aroa-* i! -r%"it ris(, #asi-i!"i-ator

aroa-* i! o%ratio!a ris( a!" sta!"ar"i;%" "'ratio! aroa-* i! 0ar(%t ris(. Mi)ratio! to

*i)*%r aroa-*%s &i r%'ir% R9I %r0issio!. Hi)*%r aroa-*%s ar% 0or% ris( s%!siti$% a!"

0a+ r%"'-% -aita r%'ir%0%!t for #a!(s foo&i!) so'!" ris( 0a!a)%0%!t.

SUPERVISORY REVIEW PROCESS 8PILLAR II:

T*% s'%r$isor+ r%$i%& ro-%ss is r%'ir%" to %!s'r% a"%'a-+ as &% as to %!s'r% i!t%)rit+ #+

t*% ris( 0a!a)%0%!t ro-%ss%s. T*% 9as% /o00itt%% *as start%" fo'r (%+ ri!-i%s of


"4




MANAGMENT]


s'%r$isor+ r%$i%& as '!"%r: 9a!( s*o'" *a$% a ro-%ss for a--%ssi!) its o$%ra -aita

a"%'a-+ i! r%atio! to its ris( rofi%, as &% as, a strat%)+ for 0ai!tai!i!) its -aita %$%s.

S'%r$isors %7%-t #a!(s to o%rat% a#o$% t*% 0i!i0'0 r%)'ator+ -aita ratios a!"

%!s'r% #a!(s *o" -aita i! %7-%ss of t*% 0i!i0'0.

S'%r$isor+ s*a r%$i%& #a!(, i!t%r!a -aita a"%'a-+ ass%ss0%!t a!" strat%)+, as &%

as -o0ia!-% &it* r%)'ator+ -aita ratios.

S'%r$isors s*a s%%( to i!t%r$%!% at a! %ar+ sta)% to r%$%!t -aita fro0 fai!) #%o&

r'"%!t %$%s. T*% R%s%r$% 9a!( of I!"ia #%i!) t*% s'%r$isor of t*% #a!(i!) o%ratio!

i! I!"ia is %7%-t%" to %$a'at% *o& &% #a!(s ar% ass%ssi!) t*%ir -aita !%%"s r%ati$%

to t*%ir ris(s. W*%! "%fi-i%!-i%s ar% i"%!tifi%", ro0t a!" "%-isi$% a-tio!s ar% %7%-t%"

to #% ta(%! #+ t*% s'%r$isors to r%"'-% t*% ris(.

MARKET DISCIPLINE 8PILLAR III:

Eff%-ti$% 0ar(%t "is-ii!% r%'ir%s r%ta#% a!" ti0%+ i!for0atio! t*at %!a#%s -o'!t%r arti%s to

0a(% &% %sta#is*%" ris( ass%ss0%!t. Piar III r%at%s to %rio"i-a "is-os'r%s to r%)'ator,

9oar" of 9a!( a!" 0ar(%t a#o't $ario's ara0%t%rs &*i-* i!"i-at%s t*% ris( rofi% of t*% #a!(.

R%s%r$% 9a!( of I!"ia *as sti'at%" t*at #a!(s s*o'" ro$i"% a Piar III "is-os'r%s, #ot*

'a!titati$% a!" 'aitati$% as at t*% %!" Mar-* %a-* +%ar ao!) &it* t*% a!!'a fi!a!-ia

stat%0%!t. T*% #a!(s ar% r%'ir%" to 't s'-* "is-os'r%s o! its &%#sit%s. Mar(%t "is-ii!%

ro0ot%s saf%t+ a!" so'!"!%ss i! #a!(s a!" fi!a!-ia s+st%0 a!" fa-iitat%s #a!(s -o!"'-ti!)

t*%ir #'si!%ss i! a saf%, so'!" a!" %ffi-i%!t 0a!!%r.

FINANCIAL RISK IN US MARKET:

Aft%r t*% start of t*% )o#a fi!a!-ia -risis, o& i!t%r%st rat%s a!" ot*%r -%!tra #a!( oi-i%s i!

t*% U!it%" Stat%s r%0ai! -riti-a to %!-o'ra)% %-o!o0i- ris(1ta(i!)i!-r%as%" -o!s'0tio! #+

*o's%*o"s, a!" )r%at%r &ii!)!%ss to i!$%st a!" *ir% #+ #'si!%ss%s. Ho&%$%r, t*is roo!)%"

0o!%tar+ %as% aso 0a+ *a$% %!-o'ra)%" %7-%ssi$% fi!a!-ia ris(1ta(i!).


"5




MANAGMENT]


P%rsist%!t+ o& )o#a i!t%r%st rat%s *a$% ro0t%" i!$%stors to s%ar-* for *i)*%r r%t'r!s i! a

&i"% ra!)% of 0ar(%ts, s'-* as sto-(s, a!" i!$%st0%!t1)ra"% a!" *i)*1+i%" #o!"s. T*is *as

r%s't%" i! %s-aati!) ass%t ri-%s, a!" %!a#%" iss'%rs to s% ass%ts &it* a r%"'-%" "%)r%% of

rot%-tio! for i!$%stors >&% )i$% +o' a! %7a0% #%o&?. T*% -o0#i!%" tr%!"s of 0or%

%7%!si$% ass%ts a!" a &%a(%!i!) 'ait+ of iss'a!-% -o'" os% ris(s to sta#iit+.

fi!a!-ia ris( ta(i!) i! -ororat% "%#t 0ar(%ts is risi!) a!" 0ar(%ts *a$% #%)'! to o$%r$a'%

0a!+ ass%ts. Sr%a"s i! t*% *i)*1+i%" a!" %$%ra)%" oa! 0ar(%ts ar% !ot far fro0 %$%s s%%!

#%for% t*% fi!a!-ia -risis. T*% 'ait+ of !%& oa!s iss'%" is aso "%-i!i!), %s%-ia+ i! t*%

%$%ra)%" oa! 0ar(%t &*%r% t*% a0o'!t of %$%ra)% i! !%& "%as is risi!). T*% !'0#%r of

Q-o$%!a!t1it% "%as &*i-* )i$% %!"%rs %ss -o!tro o$%r iss'%rs *as i!-r%as%". For %7a0%,

0a!+ !%& "%as ao& #orro&%rs to iss'% 0or% "%#t i! t*% f't'r% &it*o't o#tai!i!) rior

%r0issio! fro0 %!"%rs.

M%a!&*i%, t*% ris( t*at 0a!+ i!$%stors -o'" s% t*%ir *o"i!)s a at o!-% is !o& %$%! *i)*%r

t*a! #%for% t*% -risis. M't'a f'!"s, %7-*a!)% tra"%" f'!"s, a!" *o's%*o"s *o" a#o't 23

%r-%!t of -ororat% #o!"s as of t*% %!" of J'!% 435.T*% &orr+ is t*at s'-* Qr%tai i!$%stors

-o'" start s%i!) s'""%!+ if t*% $a'% of t*%ir ass%ts "%t%riorat%s '!%7%-t%"+.

T*% fi!a!-ia ris( os%" #+ t*% A0%ri-a! sto-( 0ar(%t to t*% U!it%" Stat%s a!" t*% r%st of t*%

&or" aris%s fro0 !%)ati$% s'rris%s t*at 0o$% fro0 t*% r%a to t*% fi!a!-ia s%-tor. O$%r ti0% t*%

fo'!"atio! for fi!a!-ia ro#%0s ar% ai" &*%! fi!a!-ia s%-tor a!" ass%t ri-% -o!"itio!s

"i$%r)% fro0 t*% '!"%r+i!) r%a s%-tor %-o!o0i- a!" oiti-a -o!"itio!s. At so0% oi!t, ass%t

ri-%s r%ai)! &it* t*% r%a s%-tor. T*% r%ai)!0%!t is a -risis if t*% ass%t ri-% a"<'st0%!t

si)!ifi-a!t+ i!-r%as%s '!%0o+0%!t, r%"'-%s )ro&t*, or "%sta#ii;%s oiti-a ro-%ss%s.

G%!%ra+, t*is o--'rs &*%! so0% i!for0atio!a or i'i"it+ s*o-( s'rris%s t*% fi!a!-ia s%-tor

a!" tri))%rs a s'""%! a!" ar)% ri-% a"<'st0%!t.

S'-* a"<'st0%!ts ar% as+00%tri- i! t*% s%!s% t*at t*% ri-% "%-i!%s o--'r 0'-* 0or% rai"+

t*a! ri-%s ros% 1 )ra+1*air%" 0ar(%t arti-ia!ts i(% to o#s%r$% i! s'-* -as%s, Pri-%s fa t*r%%

ti0%s fast%r t*a! t*%+ ris%.


"6




MANAGMENT]


D%$%o%" !atio! oi-+0a(%rs &i !ot i(%+ *a$% to "%a &it* a US sto-( 0ar(%t "%-i!% t*at

r%-iitat%s a )o#a "o&!t'r!. Most i(%+, )'i"%" #+ a-ti$%, i!for0%" 0ar(%ts a!" so'!"

)o$%r!0%!t oi-i%s, t*% 0a<or %-o!o0i%s &i r%#aa!-% )ro&t* as !%%"%" a!" r%ri-% ass%ts

)ra"'a+, 0a(i!) f%ars of a! A0%ri-a! sto-( 0ar(%t -ras* 0oot. T*%r% ar%, !%$%rt*%%ss, so'!"

r%aso!s for -o!-%r!.

O$%r ti0% t*% fo'!"atio! for fi!a!-ia ro#%0s ar% ai" &*%! fi!a!-ia s%-tor a!" ass%t ri-%

-o!"itio!s "i$%r)% fro0 t*% '!"%r+i!) r%a s%-tor %-o!o0i- a!" oiti-a -o!"itio!s. At so0%

oi!t, ass%t ri-%s r%ai)! &it* t*% r%a s%-tor. T*% r%ai)!0%!t is a -risis if t*% ass%t ri-%

a"<'st0%!t si)!ifi-a!t+ i!-r%as%s '!%0o+0%!t, r%"'-%s )ro&t*, or "%sta#ii;%s oiti-a

ro-%ss%s. G%!%ra+, t*is o--'rs &*%! so0% i!for0atio!a or i'i"it+ s*o-( s'rris%s t*%

fi!a!-ia s%-tor a!" tri))%rs a s'""%! a!" ar)% ri-% a"<'st0%!t.

T*% US sto-( 0ar(%t as %7os%" to t&o so'r-%s of r%a s%-tor ris(: >5? Di0i!is*i!) r%t'r!s to

Asia! a!" E'ro%a! i0ort1s'#stit'tio! a!" %7ort1%"1)ro&t* strat%)i%s a!" t*% 0%-*a!i-s of

US -'rr%!t a!" -aita a--o'!t fo&s. >4? T*% a)i!) of i!"'striai;%" %-o!o0+ o'atio!s a!"

t*% si)!ifi-a!t '!"%rsa$i!) of *o's%*o"s a!" '!"%rf'!"%" of '#i- r%tir%0%!t s'ort

ro)ra0s. T*%s% ar% )%!%ra+ t*o')*t of as $%r+ o!)1t%r0 ro-%ss%s t*at -o'" *a$% !o

i00%"iat% %ff%-t o! 0ar(%ts. I! o'r <'")0%!t, t*is %r-%tio! is &ro!).

T*% first ris( so'r-% %!-o0ass%s t*% ro"'-tio!1-o!s'0tio! a!" i!$%st0%!t1sa$i!)s

r%atio!s*is t*at s'stai!%" t*% US a!" its ai%s t*ro')*o't t*% /o" War "%-a"%s a!" ar%

r%f%-t%" i! US -'rr%!t a!" -aita a--o'!t fo&s. T*% s%-o!" ris( so'r-% i!-'"%s i0#aa!-%s

r%s'ti!) fro0 t*% '!"%rsa$%" -o!"itio! of A0%ri-a! *o's%*o"s a!" t*% '!"%rf'!"%" -o!"itio!

of !atio!a r%tir%0%!t a!" *%at*-ar% -o00it0%!ts. 9%-a's% of "%-i!%s i! i!"'striai;%" -o'!tr+

#irt* a!" )ro&t* rat%s &it*o't -o0ara#% r%"'-tio!s i! %!sio! a!" *%at*-ar% #%!%fits, a t*%

0a<or i!"'striai;%" -o'!tri%s fa-% )%!%ratio!a a--o'!ti!) i0#aa!-%s.

IMPORT AND E)PORT STRATEGIES FOR GROWTH:

T*%r% is )%!%ra a)r%%0%!t t*at i0ort1s'#stit'tio! a!" at%r %7ort1%" )ro&t* strat%)i%s &%r%

(%+ i!)r%"i%!ts of t*% r%-o$%r+ a!" %-o!o0i- "%$%o0%!t a!s of WWII1s-arr%" Jaa! a!"


"=




MANAGMENT]


G%r0a!+ a!" ot*%r &%st%r!1a+ -o'!tri%s s'rro'!"i!) t*% for0%r1USSR a!" /*i!a. T*is is

arti-'ar+ -%ar i! Asia fro0 t*% 563s i!to t*% %ar+ 53s. Jaa! first, foo&%" #+ t*% Asia!

Ti)%rs a!" t*% NI/s i! t*% f+i!) )%%s% for0atio! s'--%ssi$%+ 'rs'%" !atio!a a!s to

s'#stit't% "o0%sti- ro"'-tio! of #asi- )oo"s for i0orts a!" t*%! 0o$%" ' t*% ro"'-tio!

-*ai! to 0a7i0i;% )ro&t* t*ro')* %7orts to t*% "%$%o%" &or".

T*%r% is aso )%!%ra a)r%%0%!t t*at t*% U!it%" Stat%s s%r$%" i!itia+ as a -aita ro$i"%r a!"

t*%! as t*% i!-*i! i0ort%r-o!s'0%r1of1ast1r%sort to s'ort t*%s% r%-o$%r+ a!" "%$%o0%!t

strat%)i%s. T*% US t*ro')* )ra!ts, "%$%o0%!t oa!s, a!" "%f%!s% arra!)%0%!ts 0%t t*% %ar+

-aita !%%"s of its /o" War ai%s i! t*% 563s. At t*% sa0% ti0%, t*% "%1%0*asis of sa$i!) a!"

%!-o'ra)%0%!t of -o!s'0tio!, %$%! to t*% oi!t of ro$i"i!) ta7 "%"'-tio!s for -o!s'0%r

-r%"it i!t%r%st %7%!s%s, s'ort%" t*% %$o$i!) %7ort1%" )ro&t* strat%)i%s of US ai%s. T*%

*i)*1ro"'-tio!, *i)*1sa$i!)s strat%)i%s of t*% r%-o$%ri!) a!" "%$%oi!) -o'!tri%s &%r%

0at-*%" #+ a US *i)*1-o!s'0tio!, o&1sa$i!)s strat%)+.

T*%r% is aso )%!%ra a)r%%0%!t t*at t*is s+st%0 of %7ort1to1t*%1US a!" US1#'+1fro01its1ai%s

start%" to #r%a( "o&! i! t*% 53s. I! *is %7-%%!t a%r for t*% &or(i!) )ro', Ro#%rt 9%-(%r

t*oro')*+ "%s-ri#%s t*% "i0i!is*i!) r%t'r!s to %7ort1%" )ro&t* a!" i!oi!ts t*% ;%roi!) o't

of t*% strat%)+ as o--'rri!) so0% ti0% i! t*% 0i"153s.9%-(%r ri)*t+, i! o'r <'")0%!t,

-riti-i;%s as i!-o0%t%, t*% %7a!atio!s of t*% US a!" ot*%r GB )o$%r!0%!ts t*at t*% Asia!

"o&!t'r!s of t*% 0i"153s &%r% t*% r%s't of -ro!+ -aitais0 a!" i!a"%'at% fi!a!-ia

s'%r$isio! a!" a a-( of tra!sar%!-+. T*% "o&!t'r!s &%r%, of -o'rs%, i! art "'% to t*%s%

fa-tors, #'t t*% i0orta!t '%stio! is *o& Asia! 0ira-% &or(%rs #%-a0% -ro!+ -aitaists i!

a 0att%r of t*r%% or fo'r +%ars. So0%t*i!) is 0issi!).

IMPLICATIONS FOR THE UNITED STATES:

First, if t*% ai%s8 /o" War %7ort-o!s'0tio! ara"i)0 &as oti0a for &i!!i!), it &as so

#%-a's% it rais%" a!" (%t t*% r%a i!-o0%s of t*% "%$%oi!) -o'!tr+ ai%s *i)*%r t*a! t*%+

&o'" *a$% #%%! i! t*% a#s%!-% of t*% strat%)+. T*at is, t*% strat%)+ s'--%%"%" i! (%%i!) $ot%r


">




MANAGMENT]


a%)ia!-%s i! t*os% -o'!tri%s fro0 0i)rati!) to t*% ro0is%s of /o00'!is0 #+ ro$i"i!) a!"

ro0isi!) as 0'-* or 0or% &%#%i!).

T*% s%-o!" i0i-atio! of t*% P/W *+ot*%sis is t*at <'st as -aita 0ar(%ts r%ri-%" t*% Asia!

%-o!o0i- a!" oiti-a fra0%&or(s, t*%+ &i aso r%ri-% t*% US -o!s'0tio! -o00it0%!t. I!

o'r <'")0%!t, t*at r%ri-i!) a-t'a+ #%)a! s%$%ra +%ars a)o #'t *as #%%! 0as(%" #+ t*% %ff%-ts

of t*% Asia1to1US &%at* tra!sf%r a!" (%+ ro"'-ti$it+ i!-r%as%s i! t*% US.

A fr%'%!t r%aso! &*+ 0ar(%ts 0o$% st%a"i+ i! o!% "ir%-tio! is #%-a's% ratio!a, -o!traria!

-o!-%r!s ar% ass'a)%" #+ a st%a"+ fo& of i!for0atio! i!"i-ati!) t*at t*% -o!-%r!s ar% #%i!)

a""r%ss%".T*%r% is #roa", t*o')* -%rtai!+ !ot -o0%t%, a)r%%0%!t t*at 9oo0%r *o's%*o"s ar%

!ot fi!a!-ia+ &% r%ar%" for r%tir%0%!t a!" &i at so0% oi!t !%%" to r%"'-% -o!s'0tio!

a!" i!-r%as% sa$i!)s. T*%+ *a$% #orro&%" fro0 t*% f't'r% to fi!a!-% -'rr%!t -o!s'0tio!, a!"

as a -o!s%'%!-%, t*%ir -'rr%!t !%t &ort*, %7%-t%" %ar!i!)s, a!" ri$at% a!" '#i- %!sio!s ar%

!ot s'ffi-i%!t to 0%%t t*%ir r%tir%0%!t i!-o0% r%'ir%0%!ts.

GLO*AL EFFECTS OF GENERATIONAL DELEVERAGING:

If i!s'ffi-i%!t ri$at% sa$i!)s a!" '!f'!"%" a+1)o '#i- %!sio!s ar% !ot -orr%-t%" #%for%

"%0o)ra*i- a)i!) s%ts i!, t*% -as'ati%s &i i(%+ i!-'"% %r -aita i$i!) sta!"ar"s, fis-a

#aa!-%s, a!" %'it+ 0ar(%t $a'%s. A 5 G153 r%ort sai" t*at a)i!) &i *a$% t*% foo&i!)

a"$%rs% 0a-ro%-o!o0i- -o!s%'%!-%s.

As t*% ratio of -o!s'0%rs to ro"'-%rs ris%s, %r -aita i$i!) sta!"ar"s &i fa '!%ss r%ati$%

&or(for-% "%-i!%s ar% offs%t #+ i!-r%as%s i! a#or ro"'-ti$it+ a!" t*% %ff%-ti$% s'+ a!"

'tii;atio! of a#or.

9a#+ 9oo0 "issa$i!) i! r%tir%0%!t &o'" "%-r%as% t*% oo of -aita a$aia#% to fi!a!-%

-o!ti!'%" *i)* a#or ro"'-ti$it+ )ro&t*.

Fis-a #aa!-%s &i r%-iito's+ "%t%riorat% as r%$%!'%s ai" #+ t*% ar)%, *i)*1%ar!i!) 9a#+

9oo0 )%!%ratio! "%-i!% as t*%+ %!t%r r%tir%0%!t. 9'")%t "%fi-its &i ris%, "%%ti!) !atio!a

sa$i!)s a!" 'tti!) '&ar" r%ss'r% o! i!t%r%st rat%s a!" "o&!&ar" r%ss'r% o! )ro&t*.


"




MANAGMENT]


Rai"+ a)i!) -o'!tri%s i(% Jaa! a!" Ita+ ar% aso r'!!i!) ar)% -'rr%!t a--o'!t s'r's%s, #'t

a "%-i!% i! sa$i!)s rat%s as t*%s% -o'!tri%s a)% f'rt*%r -o'" r%"'-% t*% a0o'!t of )o#a

sa$i!)s. For t*% US, t*is 0%a!s t*% oo of -aita t*at *as fi!a!-%" US i!$%st0%!t a!"

-o!s'0tio! is )oi!) to s*ri!(, &it* !%)ati$% i0i-atio!s for #o!" ri-%s a!" t*% "oar.

FINANCIAL RISK AND THE US STOCK MARKET:

T*% A0%ri-a! sto-( 0ar(%t r%r%s%!ts B %r-%!t of t*% &or"8s %'it+ 0ar(%t &%at*. W*%t*%r it

is o$%r$a'%" or !ot, is -r'-ia+ i0orta!t.

THE "!!$ E)PERIENCE:

A %ss a-'t% #'t si0iar -ir-'0sta!-% %7ist%" i! t*% sri!) 5. At t*at ti0% t*%r% &as )%!%ra

s%!s% of )ro&i!) ris(. Not*i!) s%-ifi- -o'" #% a't*oritati$%+ oi!t%" to, #'t ass%t ri-% %$%s

r%ati$% to %ar!i!)s or -aita &%r% risi!) t*ro')* ast *istori- %a(s &it* !o %!" i! si)*t.

I!"o!%sia *a" <'st -oas%". R'ssia! i!t%r%st rat%s &%r% at 563 %r-%!t, a!" t*%r% &as )ro&i!)

-o!-%r! t*at t*% F%"%ra R%s%r$% !%%"%" to rais% rat%s f'rt*%r.

A 0atri7 of ris( a!" '!-%rtai!t+ %7ist%" t*at !%%"%" o!+ a! '!%7%-t%", a"$%rs% %$%!t to ti (%+

%%0%!ts to&ar" -o!tra-tio! a!" tri))%r a! i!$%stor r%a-tio!. I! 5, &% #%i%$%, t*at %$%!t &as

t*% Pa(ista!1I!"ia !'-%ar &%ao!s t%sts. T*% &*o+ '!r%"i-t%" t%sts -*a!)%" ass%t10a!a)%r

%r-%tio!s of %0%r)i!) 0ar(%t ris(. It &as s%%! to #% *i)*%r t*a! t*o')*t 1 if t&o 0a<or

"%$%oi!) -o'!tri%s -o'" s%t off %%$%! !'-%ar &%ao!s '!%7%-t%"+, t*%! !o o!% i! t*% GB

*a" t*%ir *a!"s o! t*% )%ooiti-a st%%ri!) &*%%.

To )%t ortfoio ris( "o&! to 0a!a)%ria+ tar)%t%" %$%s i! t*% *i)*%r ris( %!$iro!0%!t, ass%ts

*a" to #% so". Fi!a!-i!) R'ssia #%-a0% i0ossi#%. T*% "%fa't fi$% 0o!t*s at%r &as

i!%$ita#%. T*% s'#s%'%!t fai'r% of t*% 0ost %$%ra)%" -o0a!i%s i! t*% &or", LT/M a!"

s%$%ra ot*%r i!t%r%st1ar#itra)% f'!"s, &as '!a$oi"a#%.

T*%r% ar% 0a!+ %7a!atio!s of &*at *a%!%" i! 5, #'t t*%+ a -o!tai! -o00o!, r%at%"

%%0%!ts. First, t*% tri))%ri!) %$%!ts &%r% a ost1/o" War tra!sitio! a"<'st0%!ts to t*% !%&

r%aiti%s. S%-o!", t*%r% &as a ar)% i!-r%as% i! fi!a!-ia 0ar(%t ris( a$%rsio!. T*ir", t*%r% &as a


#0




MANAGMENT]


*%r" r%so!s% o! t*% art of ass%t 0a!a)%rs. A!", fo'rt*, t*%r% &as -o!ta)io! 11 oss%s i!

%0%r)i!) 0ar(%t ositio!s for-%" ass%t sa%s a-ross t*% #oar", &*i-* i! t'r! tri))%r%" f'rt*%r

ass%t i'i"atio!s.

T*% &or(i!)s of t*% fo'rt* %7a!atio! 1 for-%" ass%t i'i"atio!s 1 is a! %7a0% of t*%

%7r%ssio! of as+00%tri- *%r"i!) a!" -o!ta)io! r%so!s%s to '!'a!tifi%" a!" '!"is-o'!t%"

ris(. T*% tais of %$%!t "istri#'tio!s -o!tai!%" 0'-* *i)*%r ro#a#iiti%s t*a! 0ar(%t 0a(%rs

%7%-t%". W*%! t*% ro#a#iiti%s &%r% r%$%a%", t*% ass%t 0a!a)%rs tri%" to s% t*% &%a( ass%ts,

#'t i!sta!t+ fo'!" t*at t*%r% &as a0ost !o 0ar(%t for t*%0. T*%+ so" &*at t*%+ -o'" of t*%ir

&%a(, %0%r)i!) 0ar(%t a!" s%-'ati$% ass%ts, #'t 'ti0at%+ t*%+ *a" to s% so0% of t*%ir *i)*

'ait+ *i)*1t%-* sto-(s, -ororat% #o!"s, a!" E'ro%a! sto-(s a!" #o!"s. T*%+ so" %$%r+t*i!),

a!" t*%+ so" fast, '!ti t*%ir tota ositio!s &%r% "o&! to a--%ta#% %$%s. T*%+ aso -o!fir0%"

o!% of t*% *ars*%st r%aiti%s of 0ar(%t fi!a!-% 11 !ot o!+ -a! %$%r+o!% !ot )%t o't t*% "oor at

o!-%, #'t t*% "oor )%ts s0a%r as %o% )o t*ro')* it.

T*% oss%s i! R'ssia &%r% i! t*% #iio!s, so t*% oss1"ri$%! s%i!) &as i! t*% 0a!+ #iio!s a!"

to'-*%" %$%r+ 0ar(%t.

T*% s%i!) r%a-*%" s'-* a s-a% t*at it %$%!t'a+ r%'ir%" r%"'-tio!s i! t*% ar)%st ositio!,

ossi#+, i! *istor+ 1 t*% "oar+%! -arr+ tra"%. T*is tra"% i!$o$%" #orro&i!) i! +%! at a#o't 4

%r-%!t, a!" i!$%sti!) t*% ro-%%"s i! US a!" E'ro%a! sto-(s a!" #o!"s a+i!) B %r-%!t or

0or%. To s-a% #a-( t*% tra"%, US a!" E'ro%a! sto-(s a!" #o!"s *a" to #% so" for "oars a!"

"10ar(s, a!" t*%! t*% "oars a!" "10ar(s so" for +%! to a+ #a-( To(+o1#as%" #a!(s. T*%

r%s't &as a 43 %r-%!t "ro i! ar)%1-a sto-( a!" !o!1)o$%r!0%!t #o!" ri-%s a!" a! offs%tti!)

43 %r-%!t ris% i! t*% +%! a)ai!st t*% "oar 1 a i! a#o't 3 "a+s.

T*% r%s'ti!) -r%"it -o!tra-tio! "ro$% -o0a!i%s #a-( o!to #a!( #aa!-% s*%%ts a!" a%ar%" to

so& i!$%st0%!t i! t*% U!it%" Stat%s. T*% F%"%ra R%s%r$% i! s%$%ra sta)%s -'t rat%s B6 #asis

oi!ts to st%0 t*% &orst %ff%-ts of t*% -o!tra-tio! t*ro')* +%ar1%!". E'ro%a! rat% r%"'-tio!s

foo&%", i!t%!"%" to a""r%ss o!)%r1t%r0 %-o!o0i- tr%!"s i! t*% !%& E'ro%a! Mo!%tar+ U!io!

-o'!tri%s.


#1




MANAGMENT]


POSSI*LE TRIGGER EVENTS:

Not if t*% '%stio! as(s for a s%-ifi- %$%!t. If t*% '%stio! is os%", is t*%r% a s%t of ost1/o"

War tra!sitio! -o!"itio!s a!" fra)i% #aa!-% s*%%t str'-t'r%s t*at -o'" tri))%r a "o&!t'r!, t*%

a!s&%r is, +%s. T*% s%t i!-'"%s: >5? a ris% i! o!)1t%r0 US i!t%r%st rat%s r%s'ti!) fro0 so&i!)

-aita a--o'!t i!fo&s a!" P/W r%ri-i!) of US -o!s'0tio! att%r!s: >4? 0or% a!" 0or%

'!"%rsa$%" A0%ri-a! *o's%*o"s r%a-ti!) to oor sto-( 0ar(%t %rfor0a!-% #+ i!-r%asi!) t*%ir

sa$i!)s= >2? s*ar i!-r%as%s i! Jaa!%s% o!)1t%r0 i!t%r%st rat%s as )o$%r!0%!t "%#t iss'a!-%

o$%r&*%0s '#i- a!" ri$at% i!stit'tio!s8 a#iit+ to a#sor# it= a!" >? -o!ti!'%" fra)0%!tatio!

of t*% /o" War -o!s%!s's a!" a"$%rs% )%ooiti-a s'rris%s. T*% S%!at%8s r%<%-tio! of t*%

!'-%ar &%ao!s t%st #a! tr%at+, a oss of 0o0%!t'0 o! fr%% tra"%, a!" 'ti-(s i! /*i!aTai&a!

a!" I!"iaPa(ista! t%!sio!s, ar% %7a0%s of t*% fo'rt* -at%)or+.

CHALLENGES IN THE INDIAN CONTE)T:

9as% II is i!t%!"%" to i0ro$% saf%+ a!" so'!"!%ss of t*% fi!a!-ia s+st%0 #+ a-i!) i!-r%as%"

%0*asis o! #a!(8s o&! i!t%r!a -o!tro a!" ris( 0a!a)%0%!t ro-%ss%s a!" 0o"%s, t*%

s'%r$isor+ r%$i%& ro-%ss a!" 0ar(%t "is-ii!%. I!"%%", to %!a#% t*% -a-'atio! of -aita

r%'ir%0%!ts '!"%r t*% !%& a--or" r%'ir%s a #a!( to i0%0%!t a -o0r%*%!si$% ris(

0a!a)%0%!t fra0%&or(. Ho&%$%r, t*%s% -*a!)%s &i aso *a$% &i"% ra!)i!) %ff%-ts o! #a!(8s

i!for0atio! t%-*!oo)+ s+st%0s, ro-%ss%s, %o% a!" #'si!%ss, #%+o!" t*% r%)'ator+

-o0ia!-%, ris( 0a!a)%0%!t a!" fi!a!-% f'!-tio!s. T*o')* %$%r+ #a!( *as to i!$%st ot of ti0%,

0a!o&%r a!" %!%r)+ i! t*% i0%0%!tatio!s of 9as% II, +%t it *%s t*% #a!(s to ass%ss t*%

ris(s asso-iat%" &it* t*% #'si!%ss %ff%-ti$%+. Mor% so, it fa-iitat%s t*% #a!(s to ro"'-%

'a!tifi%" a!" 0or% r%aisti- 0%as'r% of t*% ris(. 9as% II %!a#%s t*% #a!(s to *a!"% #'si!%ss

&it* 0or% -o!fi"%!-% a!" 0a(% #%tt%r #'si!%ss "%-isio!s.

9't t*% t%-*!i'%s a!" t*% 0%t*o"s s'))%st%" i! t*% !%& a--or" &o'" os% -o!si"%ra#%

i0%0%!tatio! -*a%!)%s for t*% #a!(s %s%-ia+ i! a "%$%oi!) -o'!tr+ i(% I!"ia= so0% of

t*%0 ar% "%s-ri#%" as '!"%r:


#"




MANAGMENT]


I0%0%!tatio! of t*% !%& fra0%&or( &i r%'ir% s'#sta!tia r%so'r-%s a!" -o00it0%!t

o! t*% art of #ot* #a!(s a!" s'%r$isors. 9a!(s ar% r%'ir%" to 0a(% %!or0o's

i0ro$%0%!ts i! t*% ar%as of oi-i%s, or)a!isatio!a str'-t'r%, MIS, toos for a!a+sis,

ro-%ss, s%-ifi%" trai!i!) of staff %t-. It &i i!$o$% *')% -ost #ot* for t*% #a!(s as &%

as for s'%r$isors.

T*% !%& !or0s &i i!-r%as% t*% -aita r%'ir%0%!ts i! a t*% #a!(s "'% to i!tro"'-tio!

i! 0'ti% ris( &%i)*ts &it* r%f%r%!tia tr%at0%!t for *i)* rat%" ass%ts. At*o')* t*%

-aita r%'ir%0%!t for -r%"it ris( 0a+ )o "o&! "'% to a"otio! of 0or% ris( s%!siti$%

t%-*!i'%s s'-* as s%-'riti;atio!, "%ri$ati$%s, 0%ti!) s%r$i-%s, %'it+ *o"i!)s, $%!t'r%

-aita a!" )'ara!t%%s %t-.

Ris( 0a!a)%0%!t is %7tr%0%+ "ata1i!t%!si$%. A--'rat%, r%ia#% a!" ti0%+ a$aia#iit+

of "ata is -r'-ia for ro%r ris( 0a!a)%0%!t. 9a!(s !%%" to i0%0%!t s'#sta!tia

-*a!)%s to t*%ir i!t%r!a s+st%0s to r%ar% for aroriat% "ata -o%-tio! a!" r%$is%"

r%orti!) r%'ir%0%!ts. T*%s% -*a!)%s 0a+ r%'ir% s+st%0s i!t%)ratio!, 0o"ifi-atio! a!"

i!tro"'-tio! of !%& soft&ar%. 9a!(s !%%" to ass%ss t*% -aa#iiti%s of t*%ir r%s%!t

s+st%0s a!" r%$i%& t*% !%-%ssar+ s+st%0 -*a!)%s r%'ir%".

To ro$i"% t*% #asis for for%-asti!) a!" #'i"i!) of 0o"%s i! r%s%-t of $ario's

a-ti$iti%s, s'-* as oa!i!), s%-'rit+ a!" for%i)! %7-*a!)% tra!sa-tio!s, a ot of *istori-a

"ata is r%'ir%". I! t*% I!"ia! -o!t%7t 0a<or *a!"i-a is t*% a#s%!-% of "ata s%ri%s,

arti-'ar+, r%at%" to t*% tra!sa-tio!s i! i!"i$i"'a oa! a--o'!ts.

T*% !%& -aita a--or" assi)!s ris(1&%i)*t of so$%r%i)! at 3163C. T*%s% 52 aso a *i)*%r

ris( &%i)*t to t*% s0a a!" 0%"i'0 %!t%rris%s. I! I!"ia, t*% PS9s *a$% 0or% t*a! 3

%r-%!t of t*%ir %!"i!) to riorit+ s%-tor. T*% i0%0%!tatio! of 9as% II -a! a"$%rs%+

aff%-t t*% riorit+ s%-tor %!"i!).


##




MANAGMENT]


E$%! t*% G153 -o'!tri%s ar% fi!"i!) it "iffi-'t to i0%0%!t t*% 9as% II a--or" i! a t*%

#a!(s. T*%r%for%, o!)%r ti0% 0a+ #% r%'ir%" for its i0%0%!tatio! i! so0% or a t*%

#a!(s i! I!"ia.

I! I!"ia, -r%"it rati!) is r%stri-t%" to iss'%s a!" !ot to t*% iss'%rs. W*i% 9as% II )i$%s

so0% s-o% to %7t%!" t*% rati!) of iss'%s to iss'%rs. T*is &o'" #% a! aro7i0atio! a!"

it &o'" #% !%-%ssar+ for t*% s+st%0 to 0o$% to t*% rati!) of iss'%rs. E!-o'ra)i!) rati!)

of iss'%rs &o'" #% a -*a%!)%.

Y%t a!ot*%r r%'ir%0%!t for %sta#is*i!) ris( 0a!a)%0%!t s+st%0 is trai!%" a!" s(i%"

0a!o&%r. T*% 0a!a)%rs s*o'" '!"%rsta!" #ot* t*% t*%or+ a!" ra-ti-% of ris(. To

r%a-* s'-* o! '!"%rsta!"i!) '!"o'#t%"+ i!$o$%s a -o!ti!'o's %ar!i!) ro-%ss i! t*%

!%& t%-*!oo)i%s. I!"'-ti!) a -o!ti!'o's %ar!i!) ro-%ss i! t*% i!% 0a!a)%rs a!"

%"'-ati!) t*%0 i! ris( 0a!a)%0%!t is a tas( to #% a""r%ss%" o! riorit+ #+ t*% #a!(s for

t*% s0oot* a"otio! of t*% ris( 0a!a)%0%!t ri!-i%s a!" ra-ti-%s a!" 9as%1II

r%-o00%!"atio!s a-ross t*% #a!(s. S(i "%$%o0%!t for ris( 0a!a)%0%!t aroa-*%s,

#ot* at t*% #a!( %$% a!" at s'%r$isors %$%, &o'" #% a to')* tas( a*%a".


#4




MANAGMENT]


CONCLUSION:

Ris( is a! oort'!it+ as &% as a t*r%at a!" *as "iff%r%!t 0%a!i!)s for "iff%r%!t 's%rs. T*%

#a!(i!) i!"'str+ is %7os%" to "iff%r%!t ris(s s'-* as for%7 $oatiit+, ris(, $aria#% i!t%r%st rat%

ris(, 0ar(%t a+ ris(, o%ratio!a ris(s, -r%"it ris( %t-. &*i-* -a! a"$%rs%+ aff%-t its rofita#iit+

a!" fi!a!-ia *%at*.

Ris( 0a!a)%0%!t *as t*'s %0%r)%" as a !%& a!" -*a%!)i!) ar%a i! #a!(i!). 9as% II i!t%!"%"

to i0ro$% saf%t+ a!" so'!"!%ss of t*% fi!a!-ia s+st%0 #+ a-i!) i!-r%as%" %0*asis o! #a!(8s

o&! i!t%r!a -o!tro a!" ris( 0a!a)%0%!t ro-%ss a!" 0o"%s. T*% s'%r$isor+ r%$i%& a!"

0ar(%t "is-ii!%. I!"%%", to %!a#% t*% -a-'atio! of -aita r%'ir%0%!ts '!"%r t*% !%& a--or"

r%'ir%s a #a!( to i0%0%!t a -o0r%*%!si$% ris( 0a!a)%0%!t fra0%&or(.

O$%r a %rio" of ti0%, t*% ris( 0a!a)%0%!t i0ro$%0%!ts t*at ar% t*% i!t%!"%" r%s't 0a+ #%

r%&ar"%" #+ o&%r -aita r%'ir%0%!ts. Ho&%$%r, t*%s% -*a!)%s &i aso *a$% &i"%1ra!)i!)

%ff%-ts o! a #a!(8s i!for0atio! t%-*!oo)+ s+st%0s, ro-%ss, %o% a!" #'si!%ss, #%+o!" a!"

r%)'ator+ -o0ia!-%, ris( 0a!a)%0%!t a!" fi!a!-% f'!-tio!.

T*% tas( of i!t%)rati!) 9as% II is -*a%!)i!). I!"ia! #a!(s *a$% -o0% a o!) &a+ si!-%

i!"%%!"%!-% a!" 0or% so aft%r LPG %ra, *o&%$%r, sti t*%+ *a$% to -o$%r so0% "ista!-% so as to

#% #%!-* 0ar(%" &it* t*% #%st #a!(s )o#a+. 9't o!% t*i!) is for s'r% t*at t*% r%for0 ro-%ss is

o! a!" t*% I!"ia! #a!(s ar% i! t*% ri)*t "ir%-tio!. T*%+ *a$% a"ot%" #%st str'-t'r%s, ro-%ss%s


#5




MANAGMENT]


a!" t%-*!oo)i%s a$aia#% &or"&i"% a!" *a$% 0o$%" fro0 str%!)t* to str%!)t*. Sti t*% f't'r%

os%s $ario's -*a%!)%s for t*% #a!(i!) i!"'str+.

F'rt*%r &% -a! sa+ t*% foo&i!)s aso:

Ris( 0a!a)%0%!t '!"%rs-or%s t*% fa-t t*at t*% s'r$i$a of a! or)a!i;atio! "%%!"s

*%a$i+ o! its -aa#iiti%s to a!ti-iat% a!" r%ar% for t*% -*a!)% rat*%r t*a! <'st &aiti!)

for t*% -*a!)% a!" r%a-t to it. T*% o#<%-ti$% of ris( 0a!a)%0%!t is !ot to ro*i#it or r%$%!t ris( ta(i!) a-ti$it+, #'t to

%!s'r% t*at t*% ris(s ar% -o!s-io's+ ta(%! &it* f' (!o&%")%, -%ar 'ros% a!"

'!"%rsta!"i!) so t*at it -a! #% 0%as'r%" a!" 0iti)at%".

F'!-tio!s of ris( 0a!a)%0%!t s*o'" a-t'a+ #% #a!( s%-ifi- "i-tat%" #+ t*% si;% a!"'ait+ of #aa!-% s*%%t, -o0%7it+ of f'!-tio!s, t%-*!i-a rof%ssio!a 0a!o&%r a!"

t*% stat's of MIS i! a-% i! t*at #a!(. Ris( Ma!a)%0%!t /o00itt%%, /r%"it Poi-+ /o00itt%%, Ass%t Lia#iit+ /o00itt%%, %t-

ar%ϖ s'-* -o00itt%%s t*at *a!"% t*% ris( 0a!a)%0%!t as%-ts.

T*% #a!(s -a! ta(% ris( 0or% -o!s-io's+, a!ti-iat%s a"$%rs% -*a!)%s a!" *%")%s

a--or"i!)+= it #%-o0%s a so'r-% of -o0%titi$% a"$a!ta)%, as it -a! off%r its ro"'-ts at a

#%tt%r ri-% t*a! its -o0%titors.

R%)ar"i!) 's% of ris( 0a!a)%0%!t t%-*!i'%s, it is fo'!" t*at i!t%r!a rati!) s+st%0 a!"ris( a"<'st%" rat% of r%t'r! o! -aita ar% i0orta!t.

T*% %ff%-ti$%!%ss of ris( 0%as'r%0%!t i! #a!(s "%%!"s o! %ffi-i%!t Ma!a)%0%!t

I!for0atio! S+st%0, -o0't%ri;atio! a!" !%t &or(i!) of t*% #ra!-* a-ti$iti%s.


#6




MANAGMENT]


*I*LIOGRAPHY:

Das, A. 4334. Ris( a!" Pro"'-ti$it+ -*a!)% of P'#i- S%-tor 9a!(s, EPW, F%#r'ar+, .

2B1B. Dr. Kris*!A.Go+a, Ris( Ma!a)%0%!t i! I!"ia! 9a!(s So0% %0%r)i!) iss'%s. I!t. E-o.

J. R%s., 4353 5>5? 534153 P+%, H. Da$i" >5B?= 9a!( Ris( Ma!a)%0%!t T*%or+, Wor(i!) a%r RPF14B4, Haas

S-*oo of 9'si!%ss, U!i$%rsit+ of /aifor!ia, 9%r(%%+.Pa)%14. Sa!to0%ro, A!t*o!+ M. >5B?, Q/o00%r-ia 9a!( Ris( Ma!a)%0%!t: A! A!a+sis of

t*% Pro-%ss, Jo'r!a of Fi!a!-ia S%r$i-%s R%s%ar-* , 54, 21556.

Ko!is*i, M., Yas'"a, Y., 433. Fa-tors Aff%-ti!) 9a!( Ris( Ta(i!): E$i"%!-% fro0

Jaa!. Jo'r!a of 9a!(i!) a!" Fi!a!-% 4: 4561424.

K&a!, S a!" Eis%!#%is, R, 5B. 9a!( Ris(, /aitai;atio! a!" O%rati!) Effi-i%!-+.

Jo'r!a of Fi!a!-ia S%r$i-%s R%s%ar-* 54, 55B1525. Matt*%&s, K. a!" J. T*o0so!, 433. T*% E-o!o0i-s of 9a!(i!). /*i-*%st%r: Wi%+,

433= /*at%r 2, .152. M-Na0%%, D., 5B. Ris( Ma!a)%0%!t To"a+ a!" To0orro&. W%i!)to!, N%& %aa!":

Stat% S%r$i-%s /o00issio!. N%%+, Mi-*%% /ar(, a!" Da$i" W*%%o-(, 5B. QW*+ Do%s 9a!( P%rfor0a!-% Var+

A-ross Stat%s F%"%ra R%s%r$% 9a!( of St. Lo'is R%$i%&, Mar-*Ari, 4B3.

*tt:%!.&i(i%"ia.or)

A*'&aia, M.S. 4335. S%-o!" G%!%ratio! R%for0s i! 9a!(s: Ma<or Iss'%s, Pa%r

r%s%!t%" at t*% 9a!( E-o!o0ists /o!f%r%!-%, N%& D%*i, Ja!'ar+. A*'<a, K. 5B. T*% 9a!(i!) S%-tor aft%r t*% R%for0s, T*% I!"ia! E-o!o0i- Jo'r!a,

Vo. , No. , Ari1J'!%, . 51. 9a(s*i, S&aa! R. 5. /aita a"%'a-+ ratio1t*% #a!(i!) #%!-*0ar(. T*% /*art%r%"

A--o'!ta!t. Vo. LVI, No. , Mar-*, . 5315. 9aa#*, J. 4335. T*% I!"ia! 9a!(i!) I!"'str+: /*a%!)%s A*%a", I9A 9'%ti!, Vo.

III, No. @ 6, Ari, . 153. /aita >i!? a"%'a-+ i! I!"ia! 9a!(s.


#=




MANAGMENT]


/or% ri!-i%s for %ff%-ti$% #a!(i!) s'%r$isio!1a! ass%ss0%!t of t*% ositio! i! I!"ia.

R%s%r$% 9a!( of I!"ia 9'%ti!. D%-%0#%r 5. Vo. LIII, No. 54, . 52321524.

Das, A. 4334. Ris( a!" Pro"'-ti$it+ -*a!)% of P'#i- S%-tor 9a!(s, EPW, F%#r'ar+, .2B1B. J

Ka$%ri, V.S. 4335. Pr%$%!tio! of NPAs1S'))%st%", I9A 9'%ti!, Vo. III, No. ,

A')'st, . B1. Ma!i-(a$% S. 5. A"%'a-+ of -aita a!" saf%t+ of #a!(s. T*% 9a!(%r. Ma+, . 41

46. Pr'"%!tia !or0s o! -aita a"%'a-+, i!-o0% r%-o)!itio!, ass%t -assifi-atio!,

ro$isio!i!), %t-. T*% 9a!(%r. Ari 4333, . 55.

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