The Mechanics of Risk Management

IFF Training

IFF Training

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About the course

Course Structure

The course takes place over 16 weeks and comprises eight core units. The units will be released every two weeks from the start of the course.

Assessment & Post Graduate Certification

At the end of each unit there is an assessment that will allow you to benchmark your growth in knowledge and understanding. For those wishing to receive a Post Graduate Certificate from Middlesex University, an additional marked assignment of 5000 words will also need to be submitted.

Video Content

Each unit is now complimented by videos from the course director, Clive Corcoran, taking you through the components of the course with particular emphasis on complex areas.

Case Studies, Worksheets & Practical Examples

As well as videos and module content, the course has an abundance of supporting course material to help you understand the complex risk management subject

Syllabus modules

Unit 1 - Introduction to Risk Management

  • Understand the contrast between risk & uncertainty
  • Summarise the principal types of enterprise risk
  • Examine the notion that risk management should become part of an organisation's culture
  • Explain the methodological principles of Value at Risk (VaR) & evaluate whether it is a reliable indicator of portfolio risk

Unit 2 - Interest Rate and Currency Risk

  • Explain the key drivers affecting portfolio risk from variations in interest rates & foreign exchange
  • Examine the basic mathematics underlying risk of fixed income instruments from the perspective of banks, asset managers, borrowers & lenders
  • Explain the concepts behind foreign exchange forward rates, covered interest parity, how to hedge risk of assets/liabilities denominated in foreign currencies
  • Explain the key concepts behind managing interest rate risks with swaps
  • Explain the key concepts of duration, convexity, interest rate hedging & portfolio immunisation

Unit 3 - Market Risk

  • Explain the symbiotic relationship between financial risk & investment returns & account for its position as the cornerstone of finance theory
  • Differentiate between systematic risk & idiosyncratic risk
  • Outline the view of risk management which emanates from the Capital Asset Pricing Model (CAPM) & Modern Portfolio Theory (MPT) & consider the strengths & weakness of such theories especially in the wake of the 2007/9 financial crisis
  • Explore the view that for relatively uncorrelated asset returns there can be considerable risk reduction achieved through portfolio construction techniques designed to achieve diversification from combining assets in a systematic fashion
  • Explain the key characteristics of risk adjusted returns

Unit 4 - Liquidity Risk

  • Contrast between the notion of liquidity used by accountants in assessing balance sheet liquidity & the very different notion relating to depth & quality of transaction facilitation in financial markets
  • Contrast between normal market liquidity conditions enabling transactions to be conducted with minimal transaction costs, temporary bouts of illiquidity which impair ability to transact, & critical episodes of illiquidity in which markets “seize up”
  • Explain the linkage between maturity transformation & financial intermediation & the necessary presence of reasonably liquid markets
  • Explore as a case study the dysfunctional nature in late 2008 of money markets for inter-bank funding, repos, commercial paper & “normal” arbitrage operations

Unit 5 - Operational Risk

  • Illustrate how enterprises have substantial risks – resulting in financial loss, reputational damage and legal risks
  • Illustrate with actual examples how operational failures from financial institutions
  • Examine the loss scenarios of operational failures on both financial and non-financial enterprises and what internal control procedures

Unit 6 - Credit and Counterparty Risk

  • Examine the various facets of credit risk which hinge on losses sustained from failure of a counterparty to honour contractual obligations
  • Distinguish the separate components of credit risk
  • Understand the mechanics of credit default swaps
  • Understand the concepts of credit rating & scoring, the role of the major Credit Ratings Agencies, methods used to determine credit ratings, implications of ratings downgrades, how useful are ratings for determining actual risk of default?

Unit 7 - Systemic and Sovereign Risk

  • Examine the dilemma that linkages between financial intermediaries may, up to a point, contribute to systemic stability
  • Outline the observations that kurtosis & skew of financial asset returns leads to left tail dependencies with heightened probability of joint defaults in a liquidity crisis
  • Illustrate how systemic risk might can emerge from a common shock, leading to a simultaneous default of several financial institutions & informational contagion where adverse news about one financial institution’s solvency will spread to fears regarding many other institutions

Unit 8 - Regulation and Risk Management

  • Examine how statutory regulation is a primary method by which safeguarding the public interest in risk management is implemented in modern economies & explore the notion that corporate risk management is a form of self-regulation
  • Explain the motivations for regulations pertaining to risk control at the national & trans-national levels & examine the dichotomy that regulation by nation states must contend with national risks but the fact that many financial risks are transnational
  • Examine the role of major global regulators, supervisory & (quasi) regulatory bodies
  • Outline the key characteristics of major statutes underpinning regulations of financial & non-financial enterprises & review proposed measures & accords
  • Examine the practice of regulatory arbitrage

Experts

Clive Corcoran

Clive Corcoran has been engaged in the finance and asset management sectors, on both sides of the Atlantic, for more than 25 years. After completing his education in the UK, Canada and the US, he co-founded and became the CEO of an asset management company based in the USA during the 1980s and 90...

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The Mechanics of Risk Management at IFF Training

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