Summary and Final Tasks - Hidden

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

Reminder - Complete all of the Lesson 12 tasks!

You have reached the end of Lesson 12. Double-check the list of requirements on the first page of this lesson to make sure you have completed all of the activities.