SCHOOL OF ECONOMIC, FINANCE AND BANKING

COLLEGE OF BUSINESS
UNIVERSITI UTARA MALAYSIA

COURSE CODE : BWRR3063

COURSE NAME : FINANCIAL RISK MANAGEMENT
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1.0 SYNOPSIS

2.0 Risk is an important element feature in any businesses. A company confronts risks associated
with the underlying business and financial risks related to market, operational, liquidity and credit
risks. These risks influence the decision making process and future performance of a company. In
this course, students will learn about the four major types of financial risks; how the risks can be
measured and managed. Hence, students will be exposed to risk measurement concept such as
Value at Risk (VaR) and examine various types of derivative that can be used to hedge financial
risks. Beside these, students will also gain insights about alternative risks transfer methods.
Students are required to complete a project related to financial risk management issues in order to
enhance their understanding about the subject.

3.0 COURSE OBJECTIVES

This course intends the student:

2.1 understand how financial risk arises and how it can be managed.
2.2 know major type of financial risks and its components such as market risk, credit risk,
operational risk and liquidity risk.
2.3 acquire a clear understanding of the underlying theory, techniques and strategies of
managing financial risks.
2.4 acquire knowledge on how to measure potential risk and losses.
2.5 understand the risk management standards in relation to regulation and compliance.

LEARNING OUTCOMES
Upon completion of the course, students will be able to:
1. identify different types and components of financial risk faced by a firm (C1, P1,
A1).
2. describe the sources of financial risks and how financial risks can be managed
(C2, P2, A2).
3. evaluate the effects of financial risk management on organization’s decision
making (C4, P4, A3).
4. discuss the risk management standards, regulatory and compliance framework for
financial risk management (C3, P3, A2) .
5. analyse various financial instruments used to manage financial risks (C3, P3, A2).
6. analyse and measure risk of the firm using VaR (C3, P3, A2).

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 4.1 COURSE CONTENT
NO TOPICS HOURS

1.0 1.0 INTRODUCTION 6

1.1 Financial Risk Exposure
1.2 Identifying Major Financial Risk
1.3 What is Financial Risk Management?

2.0 2.0 RISK MANAGEMENT STANDARDS 6

2.1 Regulations of financial institutions
2.2 Corporate Governance
2.3 ISO 31000 on financial risk management
2.4 FRM Framework and Process

3.0 3.0 MARKET RISK 12

3.1 Foreign Exchange Risk
3.1.1 Transaction Exposure
3.1.2 Translation Exposure
3.1.3 Foreign Exchange Exposure from
Commodity Prices
3.1.4 Strategic Exposure
3.2 Interest Rate Risk
3.2.1 Absolute Interest Rate Risk
3.2.2 Yield Curve Risk
3.2.3 Reinvestment / Refunding Risk
3.3 Commodity Risk

4.0 CREDIT RISK

4.0 4.1 Settlement Risk During a Short Window 12
4.2 Components of credit risk system and the
evolution of credit risk measurement
systems
4.3 How to construct the distribution of
credit loss for a portfolio
4.4 Correlations effect

4.5 How to manage credit risk

4.6 Basle II for credit risk

5.0 5.0 OPERATIONAL RISK 12

5.1 Define Operational Risk
5.2 Categorization of Operational Risk

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 5.3 Assessing Operational Risk

5.3.1 Comparisons of Approaches

5.3.2 Loss Severity vs. Loss
Frequency
5.4 Managing Operational Risk
5.4.1 Capital Allocation and
Insurance
5.4.2 Mitigating Operational Risk
5.5 Firm wide Risk Management
5.5.1 TheThree Pillar Framework:
Best Practice Policies,
Methodologies and
Infrastructure
5.5.2 Controlling Traders

6.0 6.0 LIQUIDITY RISK 12

6.1 Traditional View of Liquidity Risk

6.2 Liquidity Adjusted VaR
6.3 Liquidity Black Holes
6.4 Long Term Capital Management
6.5 Liquidity Vs. Profitability

7.0 7.0 MEASURING RISK 12

7.1 Definition and Concept of VaR
7.2 Properties of Risk Measures
7.3 Choice of Parameters for VaR
7.4 Marginal VaR, Incremental VaR,
Component VaR
7.5 Back Testing
7.6 Stress Testing

8.0 8.0 FINANCIAL PRODUCTS AND RISK 6

HEDGING

8.1 Introduction to Derivatives

8.2 Forward and Futures Contract
8.3 Options
8.4 Swaps
8.5 Exotic Options
8.6 Catastrophic bonds
8.7 Alternative Risk Transfer

9.0 9.0 ISSUES IN FRM 6

9.1 Securitization and the 2007 Credit Crisis

9.1.1 Securitization
9.1.2 Subprime Mortgage

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 Securitization in the U.S
9.1.3 Avoiding Future Crisis
9.2 Contemporary Issues
9.2.1 Case Studies

4.0 REFERENCES

Main Reference:

Hull, J. C. (2010). Risk management and financial institutions. New Jersey: Prentice Hall.

Additional References:

Chance, D. M. & Brooks, R. (2010). An introduction to derivatives and risk management.

Canada: South-Western

Cusatis, P. & Thomas, M. (2005). Hedging instruments and risk management: How to use
derivatives to control financial risk in any market. United States: McGraw-Hill.

Jorion, P. (2011). Financial risk manager handbook. New Jersey: John Wiley & Sons, Inc.

Murphy, D. (2008). Understanding risk: The theory and practice of financial risk management.
United States: Chapman and Hall/CRC.

5.0 TEACHING METHODS

Mixed method between teacher-centred and students-centred. For the assessment strategy
it is a continuous assessment.

6.0 ASSESSMENT

Coursework 60%
Comprehensive Final Examination 40%
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100%
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7.0 ATTENDANCE

Attendance for lectures and tutorials is compulsory. Students who do not fulfill the
80% attendance requirement will be barred from taking the final examination papers
as stated in the GraduationRules. The 20% absent from lectures and tutorials will
include all reasons including medical leave (MC), death and others.

8.0 ACADEMIC MISCONDUCT

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 Disciplinary action will be enforced to student caught for unethical behaviour such as
plagiarisms, cheating, copying, and sit exam for other student also other academic
misconducts.

Additional Information:

Lecturer’s name: Dr. Waeibrorheem Waemustafa

Email: waeibrorheem@uum.edu.my
Extension number: 6888
Room number: 282 (SBM Building)
Consultation hours: 9.30am – 11.30am (Monday & Thursday)