Response to Question One
I agree with your assertions that risk management entails the process of identification, measurement, and assessment of the levels of a risk that a firm or organization can assume. Most firms establish the risk levels with the primary objective of mitigating the negative elements that they have on financial results and capital (Bessis, 2010).
I also agree with your assertion that risk management entails different steps. The first step is the identification of the risk. The second step is the identification of the causes of the risk. For example, incomplete data, corrupted information, and unsatisfactory behaviour call all lead to risk. The third step entails identifying the controls for the risk (Bessis, 2010). Such controls may try to lower the likelihood of the risk occurring. The fourth step of risk management is to establish the likelihood of the risk occurring and the potential effects.
I also agree with your argument that an organization should review the risk ratings on a regular basis and provide relevant feedback (Bessis, 2010).
Response to Question Two
I agree with your assertion that some of the risks that confront banks are credit, market, liquidity, and operational risks. Other threats include reputational, business, and strategic risks (Ghosh, 2012). They have different causes and require categorical procedures and controls to minimize. According to Ghosh (2012), all these risks can be managed by setting aside “provisions and capital” to cater for the losses or by hedging market risks through exchange trading and over-the-counter derivatives as credit derivatives can be applied to hedge credit risks.
Liquidity risk is widely highlighted to determine whether the college has enough funds to finance its manager’s programs. This highly depends on the colleges’ fund procurement policy with relation to the availability of funds, sources, and the risk of losses from increased interest rates or other market disruptions. The market liquidity risk management standards, which evaluate the viability of projects, can be used to manage the liquidity risk (Ghosh, 2012). The paper highlights various risks and their causes; however, it does not examine other financial risks such securities and insurance. Nevertheless, I like the fact that you mentioned the bailouts that the government implanted in the financial sector. Market risks of proprietary holdings and collateral obtained are major risks confronting individuals and organizations that trade in securities. Hedging transactions can be used to manage some of the risks (Ghosh, 2012).
References
Bessis, J. (2010). Risk management in banking. New York: Wiley Press.
Ghosh, A. (2012). Managing risks in commercial and retail banking. New York: Wiley Press
