Summary and Final Tasks

Key Learning Points: Lesson 11

1. Catastrophic losses in the financial industry were caused by trading in risky financial derivatives.
2. Similar themes and events existed among them all.
3. A system of risk controls was established within the financial community to better monitor and quantify this trading activity.
4. “Mark-to-market” gives the current value of all “open” trading positions based on daily market prices.
5. “P&L” is the estimated profit and/or loss determined by the mark-to-market calculations.
6. “Value @ Risk” (VaR) is a theoretical measure of the maximum potential loss for a trading book.
7. Corporations face various risk exposures. Among them are:
   • financial
   • market
   • counterparty
   • operation
   • credit
   • legal
8. Publicly-traded energy companies engaged in trading financial derivatives were required to implement risk controls by FY2000.
9. 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.

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.