Financial Risk Management and Data Analytics

Risk Analytics

1. RISK MANAGEMENT

2. What is Risk ? Risk is the possibility of something bad happening Probability of a negative occurrence Potential variability of returns around an expected return (Possibility of an outcome that is not expected)

3. Risk Management Framework

4. Types of Risk

5. Systematic Risk Affects the entire ecosystem Beyond the control of a Company / Individual Natural Disasters, Change in laws, Political instability etc C-19 and its impact on our ecosystem is a live example of systematic risk Learn to adapt & live with it !!

6. Unsystematic Risk Specific to a sector / industry / company Can be diversified / minimized / avoided Always scope for improvement Risk always associated with “Finance” as monetary impact is the most important of all All such financial risks can be classified as Credit Risk Market Risk Operational Risk

7. Credit Risk Lender / Vendor Relationship Most Common – Banks Risk of Bankruptcy & non repayment of money Risk quotient higher for Lender than a Vendor

8. Market Risk Quoted Instrument Stocks / Bonds / Debentures Fluctuation in prices due to external factors However, can be controlled by effective portfolio management 21 stocks considered to the maximum beyond which diversification is not effective

9. Operational Risk Failure of People Process Technology Proper systems & process controls to be put in place to effectively manage such risks

10. How can Fraud happen ? https://www.youtube.com/watch?v=9SVwPZ5scEU

11. Types of Credit Card Fraud Lost/Stolen Skimming Phishing Identity theft Triangulation Card Not Present

12. Merchant Location Amount Type of txn Volume Account history Transaction history Variables in fraud models

13. Fraud Management Life Cycle

14. CAUSES EVENTS EFFECTS

15. Case Studies

16. Great Depression Between 1929 – 1930 severe worldwide economic depression Started in USA 29 Oct 1929 – Black Tuesday Worldwide GDP fell by 15% between 1929 & 1931 Unemployment Rates in the range of 23% - 33% International trade fell by 50%; Crop prices dropped by 60%

17. Great Recession Financial crisis of 2007-08 Excessive risk taking by banks Bursting of the United States housing bubble Bankruptcy of Lehman Brothers International Banking crisis Basel III capital and liquidity standards was adopted

18. ICICI – Videocon - NuPower

19. What sank the Titanic ?

20. Squirrel brings down the NASDAQ In August of 1994, the NASDAQ market had to close for more than half an hour, losing valuable trading time, as an energetic squirrel had gnawed through the power lines supplying the stock market's computer centre in Trumbull, Connecticut. The system failed to perform the automatic switchover to the temporary backup power supply and consequently the market was down for 34 minutes

21. Barclays Technology Crash In June 2009, UK-based Barclays PLC experienced a technology breakdown that left millions of customers, primarily in the South of England, unable to withdraw money from ATMs for most of the afternoon. Barclay’s internet and telephone banking services were also impacted and a small number of customers experienced difficulty using their cards to make payments at retailers

22. Risk - Mitigation Matrix Frequency Severity High High Low Low Low frequency, low severity – Monitor regularly High frequency, low severity – Monitor regularly and take internal risk control as can accumulate where severity becomes larger can lead to loss of reputation High frequency, high severity – Take internal risk control measures as purchasing insurance would be expensive Low frequency, high severity – Analyse by scenario testing. Handled by planning for these in advance and/or by financing risk such as by purchasing insurance

23. Just like there are no free lunches ……… there is nothing RISK-FREE