Market Risk - Bank Management - Lecture Slides, Slides of Banking and Finance

Download Market Risk - Bank Management - Lecture Slides and more Slides Banking and Finance in PDF only on Docsity! Market Risk Docsity.com Definition • Possibility of loss due to changes in the market factors • Market risk affects the bank’s earnings • Market risk reduces the capital position of banks • Volatility of market values • Affects bank’s ability to meet its obligations Docsity.com Organizational Structure of Market Risk • Board of Directors • Risk Management Committee • Asset Liability Management Committee • Market Risk Group Docsity.com Structure of the Market Risk Group in Banks Board of  Directors Risk  Management  Committee Asset Liability  Management  Committee  Market Risk  Group Docsity.com Board of Directors • Overall responsibility for market risk • Risk Management Policy of the bank • Setting of limits for – Liquidity – Interest rate – Foreign exchange rate – Commodity trade – Equity trade Docsity.com Market Risk Group • Responsible for analyzing risk • Responsible for monitoring risk • Responsible for reporting risk profiles to ALM Committee • Preparation of forecasts – Simulation models Docsity.com Value-at-Risk Concept of Market Risk • Potential gain or loss – In a position – In a portfolio • Associated with a price movement • Measured as a probability • In relation to a time horizon Docsity.com Value-at-Risk Requirement • Instantaneous price shock for a specified holding period • One tailed confidence interval of 99% • Historical observation of at least one year • Adjustments in terms of correlation – Within risk factors – Across risk factors Docsity.com