Scribd
Upload
29 views8 pages

Liquidity Risk Management in DFIs

Risk management is important for all financial institutions in Pakistan. There are several types of risks that financial institutions must manage, including credit risk, market risk, liquidity risk, operational risk, and currency risk. Risk management involves recognizing risks, assessing them, developing strategies to manage them, and mitigating risks using resources. Risk management occurs at the strategic, macro, and micro levels within a financial institution.

Uploaded by

Laiba Tufail
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
29 views8 pages

Liquidity Risk Management in DFIs

Risk management is important for all financial institutions in Pakistan. There are several types of risks that financial institutions must manage, including credit risk, market risk, liquidity risk, operational risk, and currency risk. Risk management involves recognizing risks, assessing them, developing strategies to manage them, and mitigating risks using resources. Risk management occurs at the strategic, macro, and micro levels within a financial institution.

Uploaded by

Laiba Tufail
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

DFIs &Risk Management

LAIBA TUFAIL MALIK


FA18-BAF-005
Risk

•  Risks are usually defined by the adverse impact on profitability of several


distinct sources of uncertainty. While the types and degree of risks an
organization may be exposed to depend upon a number of factors such as its
size, complexity business activities, volume etc.
Risk Management

Risk management is the human activity which integrates recognition of risk, risk
assessment, developing strategies to manage it, and mitigation of risk using
managerial resources.
In every financial institution of Pakistan, risk management activities broadly take
place simultaneously at following different hierarchy levels. 
• Strategic level
• Macro Level
• Micro Level
Credit Risk

• Credit Risk is the risk of loss due to a debtor's non-payment of a loan.  In a
bank’s portfolio, losses stem from outright default due to inability or
unwillingness of a customer or counter party to meet commitments in relation
to lending, trading, settlement and other financial transactions. Credit risk
could stem from activities both on and off balance sheet.
Market Risk

•  It is the risk that the value of on and off-balance sheet positions of a financial
institution will be adversely affected by movements in market rates or prices
such as interest rates, foreign exchange rates, equity prices, credit spreads
and/or commodity prices resulting in a loss to earnings and capital.
Liquidity Risk

• Liquidity risk is a financial risk that for a certain period of time a given
financial asset, security or commodity cannot be traded quickly enough in the
market without impacting the market price. Liquidity risk is considered a major
risk for banks.
• Banks with large off-balance sheet exposures or the banks, which rely heavily
on large corporate deposit, have relatively high level of liquidity risk.
Operational Risk

• Operational risk is the risk of loss resulting from inadequate or failed internal
processes, people and system or from external events. Operational risk is
associated with human error, system failures and inadequate procedures and
controls.
• The objective of operational risk management is the same as for credit, market
and liquidity risks that is to understand what drives it and identify trends
internally and externally that would help predicting it.
Currency Risk

Currency Risk is a form of risk that arises from the change in price of one
currency against another. Whenever investors or companies have assets or
business operations across national borders, they face currency risk if their
positions are not hedged. 
• Transaction Risk
• Translation Risk
• Interest Rate Risk

You might also like