EBF 301
Global Finance for the Earth, Energy, and Materials Industries

Summary and Final Tasks

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Key Learning Points: Lesson 12

  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

Activities and Quiz

  1. Trade Justifications - on-going
  2. Quiz Log onto Canvas and complete the Lesson 12 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.