RISK INDICATORS

PRESENTATION BY

S.SRAVANI

The risk is the probability of loss or injury, the degree of probability of such loss. Risk is composed of the demand that bring in variations in return of income.

RISK INDICATORS

Risk indicators involve the identification of specific factors that are predictive of operational failure. The premise of this approach is that the identified factors are generally indicative of stress that are likely to result in operational failure. Risk indicators arte available at both high levels and at specific process level.

TYPES OF RISK INDICATORS

OPERATIONAL RISK

INDICATORS

ENVIRONMENTAL

RISK INDICATO

RS

FINANCIAL RISK

INDICATORS

INDUSTRIAL RISK

INDICATORS

OPERATIONAL RISK INDICATORS

In an operational risk context a risk indicator is a metric that provides information on the level of exposure to a given operational risk which the organization has at a particular point in time. In order to provide such information the risk indicator has to have an explicit relationship to the specific risk whose exposure it represents.

ENVIRONMENTAL RISK INDICATORS

The environmental risk indicators could be such things as trading volume and volatilities on major commodities or foreign exchange markets . These can be known as follows:

1. Trading volume2. Volatility in forex trading3. Exchange rate volatility4. Interest rate volatility

1. Trading volume:One integration of this result is that the correlation

between trading volumes and volatility is positive during normal times that is when volatility is relatively low. When volatility reaches very high levels this may includes traders to withdraw from the markets thereby leading to a negative correlation.

VOLATILITY IN FOREX TRADING

Volatility in forex trading refers to the amount of uncertainty or risk involved with the size of changes in a currency exchange rate. A higher volatility means that an exchange rate can be potentially spread out over a larger range of values. On the other hand a low volatility would mean that an exchange rate does not fluctuate dramatically, but changes in the value at a steady pace over a period of time.

Interest rate volatility refers to the variability of interest rates on loans and savings over time. Businesses are affected by volatile interest rates because they impact borrowing costs and investment account earnings. As a business owner, you need to recognize and track interest rate volatility to take advantage of high savings rates and low borrowing rates.

FINANCIAL RISK INDICATORS

Deal volatility

Dealing profit

Activity based costing variances

Deal volatility:various models have been developed to produce volatility forecast and

reduce the financial risk by the several alternatives like implied volatility, realized volatility. These are used for firm wide value-at-risk calculations in many financial institutions.

Dealing profit:

if the ratio of the profits from the trading of the assets are measured by dealing related profits to the current earnings is high, this means the capability of the banks, traders significantly influences the banks profits and losses

Activity based costing variances:

Activity based costing variances analysis that can be used by managers to increase productivity and reduce costs. Activity based costing is one method for determining costs and hence will have implications of some of the variances calculated.

INDUSTRIAL RISK INDICATORS

Number of defective items produced in each production line.

Percentage of defective items produced in each production line.

Change- daily, weekly, monthly etc in the number of defective items produced in each production line.

Number of items returned as defective for each product.

Number of maintenance calls for each production line absolute or per unit of time.

Number of unplanned stoppages of each production line.