Foreign Exchange Risk
After completing this reading, you should be able to: Calculate a financial institution’s overall foreign exchange exposure. Explain how a financial institution could alter its net position exposure to reduce foreign exchange risk. Calculate a financial institution’s potential dollar gain…
Measuring Credit Risk
After completing this reading, you should be able to: Explain the distinctions between economic capital and regulatory capital and describe how economic capital is derived. Describe the degree of dependence typically observed among the loan defaults in a bank’s loan…
The Black-Scholes-Merton Model
After completing this reading you should be able to: Explain the lognormal property of stock prices, the distribution of rates of return, and the calculation of expected return. Compute the realized return and historical volatility of a stock. Describe the…
Modeling and Hedging Non-Parallel Term Structure Shifts
After completing this reading you should be able to: Describe principal components analysis and explain its use in understanding term structure movements. Describe key rate shift analysis and define key rate 01 (KR01). Calculate the KR01s of a portfolio given…
Operational Risk
After completing this reading, you should be able to: Describe the different categories of operational risk and explain how each type of risk can arise. Compare the basic indicator approach, the standardized approach, and the advanced measurement approach for calculating…
Principles for Sound Stress Testing – Practices and Supervision
After completing this reading, you should be able to: Describe the rationale for the use of stress testing as a risk management tool. Describe the weaknesses identified and recommendations for improvement in: The use of stress testing and integration in…
Anatomy of the Great Financial Crisis of 2007-2009
After completing this reading, you should be able to: Describe the historical background and provide an overview of the 2007-2009 financial crisis. Describe the build-up to the financial crisis and the factors that played an important role. Explain the role…
External and Internal Ratings
After completing this reading you should be able to: Describe external rating scales, the rating process, and the link between ratings and default. Describe the impact of time horizon, economic cycle, industry, and geography on external ratings. Define and use…
Trading Strategies
After completing this reading, you should be able to: Explain the motivation to initiate a covered call or a protective put strategy. Describe principal-protected notes (PPNs) and explain necessary conditions to create a PPN. Describe the use and calculate the…
Measuring and Monitoring Volatility
After completing this reading, you should be able to: Explain how asset return distributions tend to deviate from the normal distribution. Explain reasons for fat tails in a return distribution and describe their implications. Distinguish between conditional and unconditional distributions,…