TABLE OF CONTENTS The subject of risk raises several key issues. These include:
The approach to risk
The sources of risk
The impact of risk
Measuring risk including the cost of managing risk
Introducing controls and procedures
Why disasters will happen if it is not managed
Operational risk and operations risk are not new. As soon as the first trade took place operational risk came into being and yet it is only comparatively recently that there has been an acceptance that operational risk exists. Contrast this with market and credit risk both of which have been recognized since the 1970s.
Market risk can be simply described as the risk of financial loss due to trading errors, liquidity issues, adverse market movements or breaches of market rules and regulations.
Credit risk can be simply described as the risk of financial loss due to the likelihood of a failure by a counterparty. This loss can be failure to receive either cash or assets or both and the cost or replacement.
Both market and credit risk have been high on the agenda of regulators and risk managers. An example is perhaps the capital adequacy requirements pertaining to over-the-counter ...
