Frm Part 1 Book 1 Foundations Of Risk Management

The Building Blocks of Risk Management Preview 52:44

After completing this reading you should be able to:

• Explain the concept of risk and compare risk management with risk taking.

• Describe elements, or building blocks, of the risk management process and identify problems and challenges that can arise in the risk management process.

• Evaluate and apply tools and procedures used to measure and manage risk, including quantitative measures, qualitative assessment and enterprise risk management.

• Distinguish between expected loss and unexpected loss and provide examples of each.

• Interpret the relationship between risk and reward and explain how conflicts of interest can impact risk management.

• Describe and differentiate between the key classes of risks, explain how each type of risk can arise, and assess the potential impact of each type of risk on an organization.

• Explain how risk factors can interact with each other and describe challenges in aggregating
  risk exposures.

How Do Firms Manage Financial Risk? Preview 31:22

After completing this reading, you should be able to:

• Compare different strategies a firm can use to manage its risk exposures and explain situations in which a firm would want to use each strategy.

• Explain the relationship between risk appetite and a firm’s risk management decisions.

• Evaluate some advantages and disadvantages of hedging risk exposures and explain challenges that can arise when implementing a hedging strategy.

• Apply appropriate methods to hedge operational and financial risks, including pricing, foreign currency, and interest rate risk.

• Assess the impact of risk management tools and instruments, including risk limits and derivatives.

The Governance of Risk Management Preview 25:04

After completing this reading you should be able to:

• Explain changes in corporate risk governance that occurred as a result of 2007-2009
  financial crisis.

• Compare and contrast best practices in corporate governance with those of risk management.

• Assess the role and responsibilities of the board of directors in risk governance.

• Evaluate the relationship between a firm’s risk appetite and its business strategy, including the role of incentives.

• Illustrate the interdependence of functional units within a firm as it relates to risk management.

• Assess the role and responsibilities of a firm’s audit committee.

Credit Risk Transfer Mechanisms Preview 38:30

After completing this reading you should be able to:

• Compare different types of credit derivatives, explain how each one transfers credit risk and describe their advantages and disadvantages.

• Explain different traditional approaches or mechanisms that firms can use to help mitigate credit risk.

• Evaluate the role of credit derivatives in the 2007-2009 financial crisis and explain changes in the credit derivative market that occurred as a result of the crisis.

• Explain the process of securitization, describe a special purpose vehicle (SPV) and assess the risk of different business models that banks can use for securitized products.

Modern Portfolio Theory (MPT) and the Capital Asset Pricing Model (CAPM) Preview 52:24

After completing this reading, you should be able to:

• Explain modern portfolio theory and interpret the Markowitz efficient frontier.

• Understand the derivation and components of the CAPM.

• Describe the assumptions underlying the CAPM.

• Interpret the capital market line.

• Apply the CAPM in calculating the expected return on an asset.

• Interpret beta and calculate the beta of a single asset or portfolio.

• Calculate, compare, and interpret the following performance measures: the Sharpe performance index, the Treynor performance index, the Jensen performance index, the tracking error, information ratio, and Sortino ratio.

The Arbitrage Pricing Theory and Multifactor Models of Risk and Return Preview 22:02

After completing this reading, you should be able to

• Explain the arbitrage pricing theory (APT), describe its assumptions, and compare the APT to the CAPM.

• Describe the inputs (including factor betas) to a multifactor model.

• Calculate the expected return of an asset using a single-factor and a multifactor model.

• Explain models that account for correlations between asset returns in a multi-asset portfolio.

• Explain how to construct a portfolio to hedge exposure to multiple factors.

• Describe and apply the Fama-French three-factor model in estimating asset returns.

Risk Data Aggregation and Reporting Principles Preview 30:13

After completing this reading you should be able to:

• Explain the potential benefits of having effective risk data aggregation and reporting.

• Describe key governance principles related to risk data aggregation and risk reporting practices.

• Identify the data architecture and IT infrastructure features that can contribute to effective risk data aggregation and risk reporting practices.

• Describe characteristics of a strong risk data aggregation capability and demonstrate how these characteristics interact with one another.

• Describe the characteristics of effective risk reporting practices.

Enterprise Risk Management and Future Trends Preview 30:52

After completing this reading you should be able to:

• Describe Enterprise Risk Management (ERM) and compare an ERM program with a traditional silo-based risk management program.

• Compare the benefits and costs of ERM and describe the motivations for a firm to adopt an ERM initiative.

• Explain best practices for the governance and implementation of an ERM program.

• Describe important dimensions of an ERM program and relate ERM to strategic planning.

• Describe risk culture, explain characteristics of strong corporate risk culture, and describe challenges to the establishment of a strong risk culture at a firm.

• Explain the role of scenario analysis in the implementation of an ERM program and describe its advantages and disadvantages.

• Explain the use of scenario analysis in stress testing programs and in capital planning.

Learning From Financial Disasters Preview 52:04

After completing this reading, you should be able to:

Analyze the key factors that led to and derive the lessons learned from case studies involving the following risk factors:

• Interest rate risk, including the 1980s savings and loan crisis in the US

• Funding liquidity risk, including Lehman Brothers, Continental Illinois, and Northern Rock

• Implementing hedging strategies, including the Metallgesellschaft case

• Model risk, including the Niederhoffer case, Long Term Capital Management, and the London Whale case

• Rogue trading and misleading reporting, including the Barings case

• Financial engineering and complex derivatives, including Bankers Trust, the Orange County case, and Sachsen Landesbank

• Reputational risk, including the Volkswagen case

• Corporate governance, including the Enron case

• Cyber risk, including the SWIFT case

Anatomy of the Great Financial Crisis of 2007-2009 Preview 24:47

After completing this reading, you should be able to:

• Describe the historical background and provide an overview of the 2007–2009 financial crisis.

• Describe the build-up to the financial crisis and the factors that played an important role.

• Explain the role of subprime mortgages and collateralized debt obligations (CDOs) in the crisis.

• Compare the roles of different types of institutions in the financial crisis, including banks, financial intermediaries, mortgage brokers and lenders, and rating agencies.

• Describe trends in the short-term wholesale funding markets that contributed to the financial crisis, including their impact on systemic risk.

• Describe responses taken by central banks in response to the crisis.

GARP Code of Conduct Preview 16:24

After completing this reading you should be able to:

• Calculate, compare, and evaluate the Treynor measure, the Sharpe measure, and Jensen’s alpha.

• Compute and interpret tracking error, the information ratio, and the Sortino ratio.