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Financial Risk Management - Assignment Example
Finance & Accounting
Pages 14 (3514 words)
Financial Risk Management Introduction Money lending in different forms has always taken place in the history of mankind. Money lenders of some form or the other have existed in the market over long ancient years. In the beginning of the twentieth century, modern industry required a state regulated banking system (Hammonds, 2006)…
The banking and financial institutions of a country are responsible for the development and progress of different sectors in the economy. They mobilize household savings and lend it to the potential investors in a country. Investments made in the business corporations help them to expand and generate more employment opportunities in a country. Thus, financial institutions and banks play a pivotal rule in the progress of a nation (Saunders and Cornett, 2011). Figure 1: Classical Banking Model (Source: PPT) Figure 1 above depicts the simplest version of banking model in an economy. However the primary task of these institutions also constitute in offering loans to only the worthy borrowers. Rise in the threshold of bad debts result in acute loss of all the related economic entities. Thus, controlling credit, interest and operational risk is one of the most important tasks conducted by all financial institutions. However, the actual framework of banking system in an economy is more complex, this takes into account the market securities and banking risks involved in lending operations (ECB, 2011). ...
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