Hedging in Financial Markets

Hedging in Financial Markets

Hedging in Financial Markets

Hedging normally happens everywhere. For example, when you’re buying homeowner's insurance, you are hedging or protecting yourself against a variety of unforeseen disasters like fires, robbery, etc. To reduce the risk while investing, all individual investors, portfolio managers, and corporations use hedging techniques. However, hedging in financial markets is not as straightforward as paying an insurance company an annual fee. (more…)
Investment Policy Statement

Investment Policy Statement

Investment Policy Statement

An investment policy statement (IPS) is a document drafted between a portfolio manager and a client. It outlines the rules and guidelines that the portfolio manager should abide by when considering asset allocation in the client’s portfolio. In other words, an investment policy statement states how a portfolio manager should try to manage the client’s money. A few examples of issues that are addressed in an IPS are asset allocation decisions, client risk tolerance, leverage, liquidity requirements, and foreign security investment restraints. (more…)
Procter & Gamble-Bankers Trust

Procter & Gamble-Bankers Trust

Procter & Gamble-Bankers Trust

Financial disasters have brought to light some really opportunistic behavior and serious frauds. As there is so much trust towards banks, bankers, and brokers, the stock market has repeatedly collapsed to unprecedented levels. Frauds and lack of transparency play a big role in major losses to even the biggest of companies. One such case is the Procter & Gamble and Bankers Trust case.

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Bank Stress Test

Bank Stress Test

Bank Stress Test

For almost everyone, recessions and market collapses are painful, and they can be particularly problematic for banks. The global financial crisis in 2008 was considered to be a consequence of sub-optimal stress tests in banks. This further led regulators to drive investment, develop and incorporate improved stress-testing mechanisms globally. Banks normally lend more money than they do, so bank losses are magnified and rippled across the financial system. They use stress tests to predict what will happen when things go wrong in order to avoid a disastrous outcome. (more…)
Counterparty Risk

Counterparty Risk

Counterparty Risk

The biggest risk any organization could take is that of not taking any risk. There is always a high chance of the counterparty defaulting or failing to meet its obligations in a transaction, which can also be termed as Counterparty Risk. In all financial transactions, there are varying degrees of counterparty risk. It can also be called Default Risk. This is normally used in terms of a financial transaction. It can exist in trading, credit, and investments transaction. This risk should be weighed by both sides during the contract assessment. (more…)
Risks faced by the Banks

Major Risks faced by the Banks

Major Risks faced by the Banks

The financial sector has undergone significant changes over the decades due to internal and external factors. The modern banking sector is extremely complex and involves stakeholders with different backgrounds. In this increasingly dynamic environment, new challenges arise, requiring an adjustment to the structures and procedures of risk management. If history was an indicator, it was because of unwise risks that banks incurred billions of losses. The various types of risks that each bank faces are therefore crucial to understand.
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Enterprise Risk Management (ERM)

Enterprise Risk Management (ERM)

It is rightly said, “opportunities and risk come in pairs”. There is a bigger opportunity waiting behind every risk an organization takes. Risk is an important element for any organization which is always taken into consideration. Now comes the question of how to manage the risk. Enterprise risk management is one of the methods to do so. It refers to the process of planning, organizing, leading, and controlling the activities of the organization in order to minimize the effects of risk on the capital and earnings of the organization. This type of risk management not only allows the organization to know about the plan of action but also the stakeholders, shareholders, and potential investors in the annual report. (more…)
How Net Stable Fund Ratio is Managed by Bank

How Net Stable Fund Ratio (NFSR) is managed by bank?

How Net Stable Fund Ratio (NFSR) is Managed by Bank?

The key role of banks in society is to attract savings from families, businesses, and other stakeholders and then lend it to others. A bank borrows short-term loans (deposits) and lends long-term loans. The management of this timing mismatch creates an advantage, but also involves a number of risks. One of the largest is to keep the liquidity deemed necessary to meet the cash needs of those who have lent the bank their money. (more…)
What is Clearing Margin?

What is Clearing Margin?

What is Clearing Margin?

Clearing margins are financial safeguards that guarantee that clearing members (usually businesses or corporations) performed on the open futures and options contracts of their customers. Clearing margins are specific customer margins that are expected to be deposited with brokers by individual buyers and sellers of futures and options contracts. (more…)
COVID-19 effects on Banking Industry

COVID-19 effects on Banking Industry

COVID-19 effects on Banking Industry The pandemic has pushed the global economy into a recession, and a halt to economic growth. Amid the coronavirus pandemic, several countries across the world resorted to lock-downs to “flatten the curve” of the infection. These lock-downs have compelled ceasing almost all economic activity. The COVID-19 pandemic could be the most serious challenge to financial institutions like Banks as the economic fallout spreads, retail banks find themselves juggling some big priorities that require concrete steps to restructure. (more…)