Banking is now an active asset-liability risk management
enterprise, attributable in large part to the globalization of
commerce. The authors of this descriptive yet practical,
applications-oriented book examine the sources and management of
traditional and nontraditional banking risks, then the conventional
on-balance sheet and the modern off-balance sheet risk management
methods. Unlike other more general risk management books, however,
they focus closely on the use of financial derivatives--instruments
to control the core risks attributable to credit and to
fluctuations in interest and foreign exchange rates. The authors
cover all this and more, giving experienced and novice
practitioners both an easily accessed way to understand and cope
with the banking risks they are already familiar with, and the new
risks just emerging. The book will also be useful as a supplemental
text in college-level courses on money and banking and on the
operation of financial markets in general.
The authors begin by explaining how banking has moved from a
routine financial process to an active and impersonal process of
risk management, from relationship banking to community banking.
Even banks that have stayed with traditional lending are now
assuming greater risks. The authors then focus on the details of
measuring, monitoring, and controlling risks. They define risk and
the different philosophical approaches to its management, then
continue with a discussion of operational matters, such as risk
identification and classification. They discuss the evolution of
banking risk management and the banking environment of the 20th
Century, with special attention to the differences in methods used
during the time of fragmented and highly regulated economies and
those used in the highly integrated global economies of the last
quarter century. The book describes in useful detail the major
financial derivative products: forwards, options, caps, collars,
and swaps, and their uses as risk management devices and tools for
speculation, both. The book also treats on-balance sheet risk
management methods, such as credit options and credit swaps.
Interest rate risk is also covered in detail, and so too the
management of foreign currency risk.
General
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