Key Learning Points: Lesson 11
- Catastrophic losses in the financial industry were caused by trading in risky financial derivatives.
- Similar themes and events existed among them all.
- A system of risk controls was established within the financial community to better monitor and quantify this trading activity.
- “mark-to-market” gives the current value of all “open” trading positions based on daily market prices.
- “P&L” is the estimated profit and/or loss determined by the mark-to-market calculations.
- “Value @ Risk” (VaR) is a theoretical measure of the maximum potential loss for a trading book.
- Corporations face various risk exposures. Among them are:
- Publicly-traded energy companies engaged in trading financial derivatives were required to implement risk controls by FY2000.
- Companies need to have a defined risk control structure in-place including:
- Standard risk metrics
- Daily reporting requirements
- Risk Policies and Procedures
- Violations reporting
- Independent Risk Control Staff headed by a Chief Risk Officer
- Risk Oversight Committees comprised of top executives
Activities and Quiz
- Trade Justifications - on-going
- Quiz Log onto Canvas and complete the Lesson 11 Quiz
Reminder - Complete all of the lesson tasks!
You have reached the end of this lesson. Double-check the list of requirements on the first page of this lesson to make sure you have completed all of the activities.