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FRM Intro

Risk Risk is volatility of unexpected outcomes. It is the potential for the occurrence of a loss, but cannot be separated from growth opportunities.
Business risk vs. Financial Risk Business Risk: deliberate and necessary (e.g. business decisions) Financial risk: Losses due to financial market activities (e.g. interest rate exposure, default on financial obligations
Financial risk management Is the design and implementation of procedures for identifying, measuring and managing financial risk
Major financial risk types Market risk, Credit Risk, Operational Risk, Investment risk
Market risk and Liquidity risk Asset-Liquidity (market liquidity) Funding-Liquidity (cash flow)
Credit risk Default, credit deterioration (downgrade)
Operational risk Internal processes, Model risk, people risk, Legal risk
VaR Summarizes the worst loss over a target horizon that will not be exceeded with a given level of confidence. P(L >VaR) <=5% for c=95% P(L >VaR) <=1% for c=99%
Created by: npk144a
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