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DRPS : Course Catalogue : Business School : Common Courses (Management School)

Postgraduate Course: Introduction to Risk Management in Banks (CMSE11167)

Course Outline
SchoolBusiness School CollegeCollege of Humanities and Social Science
Course typeStandard AvailabilityAvailable to all students
Credit level (Normal year taken)SCQF Level 11 (Postgraduate) Credits15
Home subject areaCommon Courses (Management School) Other subject areaNone
Course website None Taught in Gaelic?No
Course descriptionManagers in a risk function in banks must understand the nature and sources of risks that depositors, equity holders and debt holders are subject to. The aim of this course is to give the student a detailed knowledge of the nature of these risks, how to measure the exposure that a bank has to such risks and an understanding of some ways in which such risks can be managed by a bank.
Entry Requirements (not applicable to Visiting Students)
Pre-requisites Co-requisites
Prohibited Combinations Other requirements None
Additional Costs None
Information for Visiting Students
Displayed in Visiting Students Prospectus?No
Course Delivery Information
Delivery period: 2013/14 Semester 1, Available to all students (SV1) Learn enabled:  Yes Quota:  None
Web Timetable Web Timetable
Course Start Date 16/09/2013
Breakdown of Learning and Teaching activities (Further Info) Total Hours: 150 ( Lecture Hours 20, Seminar/Tutorial Hours 9, Summative Assessment Hours 2, Programme Level Learning and Teaching Hours 3, Directed Learning and Independent Learning Hours 116 )
Additional Notes
Breakdown of Assessment Methods (Further Info) Written Exam 70 %, Coursework 30 %, Practical Exam 0 %
Exam Information
Exam Diet Paper Name Hours & Minutes
Main Exam Diet S1 (December)Introduction to Risk Management in Banks2:00
Learning Outcomes
On completion of this course, the student will be able to:
1. Knowledge and Understanding

After successfully completing the course the student will

o have a knowledge of the nature of different types of risks that banks face: interest rate risk, market risk, credit risk, foreign exchange risk, sovereign risk, liquidity risk and insolvency risk
o understand how different types of risks relate to items on a bank's balance sheet
o have an understanding of the causes and sources of these risks
o understand how to measure such risks and of the strengths and weaknesses of different measures
o understand strategies of how to manage certain of these risks

2. Cognitive Skills

On completion of the course a student will be able to

o use appropriate concepts to appropriate address the problem of how to measure the size of certain types of risk that banks face
o interpret the meaning of values of different risk measures
o evaluate assessments of risk given to a manager of a bank by specialists

3. Professional/subject specific/practical skills

On completion of the course a student will be able to

o use certain quantitative techniques to assess the magnitude of interest rate risk, market risk, credit risk, foreign exchange risk sovereign risk, liquidity risk and insolvency risk
o interpret the meaning of these measures of risk
o compute in simple terms the regulatory capital requirement for a bank

4. Transferable skills

During the course a student will develop skills to

o communicate complex technical issues coherently and precisely
o quantitatively analyse concepts concerning the nature of risks
o work intensively and methodically to understand technical issues
Assessment Information
Examination, 2 hours, 70%.
Assignment 30%
Special Arrangements
Additional Information
Academic description Not entered
Syllabus Lecture 1 Risks of Financial Intermediation
Interest rate risk, market risk, credit risk, off balance sheet risk, technology risk, foreign exchange risk. Sovereign risk, liquidity risk , insolvency risk.

Lecture 2 Interest Rate Risk
Maturity model, duration model, repricing model.

Lecture 3 Market Risk
Market risk measurement, JPM's Riskmetrics Model, Regulatory models.

Lecture 4 Credit Risk: Individual Loan Risk
Types of loans, return on a loan, retail versus wholesale decisions, measurement of credit risk, default risk models

Lecture 5 Credit Risk: Loan Portfolio and Off Balance sheet Activities
Concentration risk, applications of portfolio theory. Off balance sheet activities and solvency, returns and risks of off balance sheet activities, settlement risk, affiliate risk.

Lecture 6 Foreign Exchange Risk
Foreign exchange rate volatility and exposure, FX trading, foreign asset and liability positions. Including hedging and multi foreign asset-liability positions.

Lecture 7 Sovereign Risk
Credit risk versus sovereign risk, debt repudiation versus debt, rescheduling, country risk evaluation.

Lecture 8 Technology and other Operational Risks
Sources of Operational risk, technological innovation and profitability, impact of technology on financial service production, effect of technology on revenues and costs, testing for economies of scale and scope, empirical findings on economies of scale and scope, technology and the evolution of the payments system, other operating costs.

Lecture 9 Liquidity Risk, Liability and liquidity risk management
Sources of liquidity risk, liability side and asset side liquidity risk, unexpected deposit decreases and bank runs, deposit insurance, liquidity risk and life insurance companies. Liquid asset management, liquid asset portfolio, risk-return trade-off for liquid assets, liability management, choice of liability structure,.

Lecture 10 Capital Adequacy
Capital and insolvency risk, Leverage ratio, Basel II: standardised approach, IRB approach.

Lecture 11 Loan sales and Collateralisation
Definition and types of loan sales, reasons for loan sales, methods of converting on balance sheet assets to securitised assets, the Pass-Through security, collateralised mortgage obligations, MBBs, strips.
Transferable skills Not entered
Reading list Saunders, A & Cornett, M (2011) A Financial Institutions Management: A Risk Management Approach. McGraw Hill, 7th ed.
Study Abroad Not entered
Study Pattern Not entered
KeywordsNot entered
Course organiserDr Fernando Moreira
Tel: (0131 6)51 5312
Course secretaryMiss Malgorzata Litwinska
Tel: (0131 6)51 3028
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