Corporate Risk Managemenet Assignment Example | Topics and Well Written Essays - 2250 words

Corpo crop Risk Managemenet - Assignment ExampleThis paper seeks to provide an explanation on how to manage guess in a financial industry. Specifically, this paper provides an explanation on how to manage risks of a imprecateing sector, and this is in regard to the taking of an insurance policy. In the banking sector, Risk management practices focuses on the operational risks, liquidity risks, credit risks, market risk and interest rate risk. This paper focuses mostly on the Credit risk of my hypothetical banking organization. The hypothetical name of my bank is the cant of Venus. This is a bank, with a presence all over the country, and has more than 300 employees. This bank specializes in crack all manner of banking services, and this includes issuance of loans, safe keeping of precious commodities, money transfer and forex exchange. All these aras have their own risks. Credit risk refers to a shoes where a borrower may fail to pay a debt, in which he or she is obligated to p ay (Olson and Desheng, 51). The risks concern in this situation include a loss on the interest, and the principal amount given as a loan. Occurrence of this risk overly causes a disruption in the cash prevail of the bank, and an change magnitude the costs of collecting the debts owed to the bank. Effectively reducing the occurrence of these risks, results to the success of the banking institution. This is because the banks main source of income emanates from interests it charges on the loans issued (Mehta, 28). To achieve success therefore, the Bank of Venus took an insurance policy to safeguard and protect itself from negative experience in case there was the emergence of risks associated with issuance of credit. However, the insurance company seeks to increase the following years premium. This will increase the operational costs of the banking organization as a result, there will be a decrement of profits. This paper therefore seeks to identify and explain alternative courses of risk management practices that the bank can initiate. This paper also seeks to explain the various thought processes and compendium that the bank should take for purposes of choosing the alternative course of action. Alternative Risk Management Course of Action in Managing Credit Risk The first alternative method of managing credit risks is referred to as risk based pricing. This is a method in which the bank will charge a very high interest rate to individuals who are most likely to default. Under this method, the bank will look into the credit rating of the individual, the purpose of the loan, and the loan to value ratio (Hopkin, 31). Other factors that the bank will look at before issuing the loan and calculating interests are the employment status of the borrower, the amount of loan under consideration, and the levels of documentation involved during the process of applying for a loan (Hull, 22). Under this method of risk management, the bank will calculate the rate of int erest by analyzing the time value of the money, and also estimating the probability of the borrowing defaulting on the loan. However, this form of managing credit risk has come under a lot of criticisms. One of the major criticism of this strategy emanates from consumers who are of the view that initiating this type of policy in managing credit risk makes it difficult for shopper to locate affordable interest rates from lenders/ banking organizations (Tarantino and Deborah, 12). This is because it is difficult for sho