The 'RISK RETURN FRAMEWORK FOR FINANCIAL INSTITUTION LENDING' ProgramVish Tumu Associates
Price on request
Risk is a fact of life for all financial organization, whether a full serives bank, a leasing company or a small loan company. We offer you two methods to dealing with risk: (I) nglect risk by dealing only with transactions in "Safe" such as, offering funds only for property that can be easily retrieved in case of failure or of movable property who have an active secondary market - the limits of this scheme the company a financial institution is prepared to participate and therefore, its role and effect in the financial system. An unexpected side effect of this scheme is to avoid the risk that a financial institution unwittingly assume the risk of their asset portfolio tends to be limited to a "safe" asset class do not needful represent a diversified portfolio of assets from a conventional view. A second limit of this scheme is the payoff: it extends and the volume of business tends to be thinner.
The second approach (and favored) to address risks requires a financial institution to incorporate the operations of risk through the pricing mechanism: the risk-return model. In the center of the model is that risk and return go hand in hand. Consequently, high-risk dealings are priced higher compared to dealings with little or no risk. This assures a financial institution earns the hoped for rate of return, still with default values, as these are statistically calculated and has prices. The risk-return model requires an operation with a price of various elements.
* The risk-free rate, in turn derives from an institution's Cost of Capital;
* A marked benefit in turn derives from the competitive forces in an economy;
* The risk premium derived from the categorization of the risk of a transaction - the higher the risk, the greater the risk premium.
Risk-Return model is an approach of "portfolio" to address risk, largely in the same manner as discussed in the Stock risk or insurance business. The concept of the portfolio is very strong, yet easy: the "result" of a portfolio can be measured more accurately than the result of a commodity.
This 5 days lecture provides an in-depth exposure to the theory and exercie underlying the induction of a risk-return model in the operations of a financial institution. Once the transition is complete, financial institutions can require an important transformation of its role and influence in the financial system with greater profitableness, as they have mastered an essential component to operate in a world where risk is a fact of living.