3. systematic unsystematic risks - 1

1. sartaj.hussain
Purchasing Power Risk:Purchasing Power Risk:

2. sartaj.hussain
Purchasing Power Risk:Purchasing Power Risk:
Assume that you lend/invest Rs 100 to your
friend/in a security today, for a period of one year
at a rate of interest/expected return of 10% per
annum.
What is your return,
8.if prices remain stable,
9.and if the prices change? Assume that cost of
living index rises to 112 from a base of 100.

3. sartaj.hussain
Purchasing Power Risk:Purchasing Power Risk:
•We may lend or borrow money.
•Both the positions assume risk.

4. sartaj.hussain
:
Forex Risk


☼
Expos ure in various

Expos ure in various
.
c urre nc ie s
.
c urre nc ie s
☼
Inc re as e d volatility in

Inc re as e d volatility in

c urre nc y

c urre nc y
.
pric e s
.
pric e s

5. sartaj.hussain

Foreign exchange
:
risk Forms
☻
Transaction Exposure

Transaction Exposure
☻
Translation Exposure

Translation Exposure
☻
Economic Exposure

Economic Exposure

6. sartaj.hussain

Transaction

Transaction
:
Exposure
:
Exposure
• .
Time zone gap
.
Time zone gap
• .
Curre nc y diffe re nc e
.
Curre nc y diffe re nc e
• .
Fluc tuating Curre nc ie s
.
Fluc tuating Curre nc ie s

7. sartaj.hussain

Translation

Translation
ExposureExposure
• .
Ge ographic al Variations
.
Ge ographic al Variations
• .
Bus ine s s Cons olidations
.
Bus ine s s Cons olidations

8. sartaj.hussain
:
Economic Exposure
:
Economic Exposure
/
Im p a c t o f in te re s t ra te s in fla tio n o n th e
/
Im p a c t o f in te re s t ra te s in fla tio n o n th e

e x c h a n g e ra te

e x c h a n g e ra te

9. sartaj.hussain
Operational Risk:Operational Risk:
Potential loss arising as a result of
inadequate or failed internal processes,
people and systems or from external
events.”

10. sartaj.hussain
Operational Risk: Drivers:Operational Risk: Drivers:
•People
•Processes
•Technical
•Technology
•External Environment