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FIN625 Short Notes FOR FINAL TERM

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Muhammad Ali
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23 views

FIN625 Short Notes FOR FINAL TERM

Uploaded by

Muhammad Ali
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Short Notes: Lectures 19 to 45

Lecture 19: Exposure Assessment

 Definition: Evaluation of credit exposure for individual borrowers and portfolios.


 Factors Considered:
o Borrower’s financial condition.
o Economic conditions.
o Stress testing outcomes.
 Key Process: Assess risks and potential losses.

Lecture 20: Credit Decision-Making Structure

 Structure:
o Senior management oversees decision-making.
o Credit committees ensure compliance with policy.
 Key Responsibilities:
o Policy formulation.
o Approval and monitoring of credit.

Lecture 21: Risk Weights for Public Sector Entities

 Definition: Risk weights assign capital requirements to public sector entities.


 Key Aspects:
o Differentiation between central and non-central government entities.
o Alignment with Basel regulations.

Lecture 22: Counterparty Risk in OTC Derivatives

 Definition: Risk of default by a counterparty in OTC derivative contracts.


 Risk Weighting:
o Use of credit exposure measures.
o Mitigation via netting agreements.

Lecture 23: Qualitative Disclosures

 Purpose: Enhance transparency in credit risk management.


 Components:
o Risk exposure.
o Mitigation strategies.
o Compliance with regulations.

Lecture 24: Credit Risk Mitigation in the Standardized Approach


 Techniques:
o Collateralization.
o Guarantees and credit derivatives.
 Requirements:
o Legal enforceability.
o Maturity and currency alignment.

Lecture 25: Guarantees and Operational Requirements

 Guarantee Types: Personal and corporate guarantees.


 Operational Considerations:
o Enforceability.
o Risk of maturity mismatches.

Lecture 26: Internal Ratings-Based Approach

 Definition: Advanced credit risk management using internal models.


 Key Features:
o Probability of Default (PD).
o Loss Given Default (LGD).
o Exposure at Default (EAD).

Lecture 27-28: Supervisory Review Principles

 Supervisory Role:
o Ensure adequate credit risk systems.
o Conduct independent evaluations.
 Transparency:
o Disclosure of risk management practices.

Lecture 29: Role of Financial Advisors

 Contributions:
o Advise on credit strategies.
o Promote ethical practices.
 Key Challenge:
o Balancing profit with risk mitigation.

Lecture 30-32: Risk in Society and Risk Management

 Sources of Risk:
o Economic fluctuations.
o Systemic risks.
 Management Framework:
o Identify, measure, and control risks.
o Hedge against financial distress.
Lecture 33-36: Insurance and Risk

 Role of Insurance:
o Mitigate credit risk via life and non-life insurance products.
o Manage auto and liability insurance.
 Processes:
o Underwriting.
o Claim settlement.

Lecture 37-41: Specialized Insurance Products

 Crime Insurance: Protects against fraud and theft.


 Surety Bonds: Assures performance of contractual obligations.
 Commercial Property Programs:
o Coverage for business-related properties.
o Risk pooling.

Lecture 42: Credit Risk & Insurance

 Importance:
o Integrates credit risk management and insurance.
o Reduces exposure through customized policies.

Lecture 43: Financial Development and Economic Growth

 Interconnection:
o Credit risk management stabilizes financial markets.
o Promotes long-term economic growth.
 Strategies:
o Improve financial inclusivity.
o Strengthen institutional frameworks.

Lecture 44: Non-Life Insurance

 Types:
o Property and casualty insurance.
o Auto and liability insurance.
 Impact:
o Reduces exposure to unforeseen events.

Lecture 45: Recap

 Core Concepts:
o Principles of credit risk management.
o Integration with financial and insurance sectors.
 Applications:
o Stress testing.
o Portfolio diversification.

These notes summarize the main topics of lectures 19 to 45 for easy reference.

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