What is financial risk? FRM Foundations (T1-01)

Financial risk includes market risk, credit risk, operational risk, liquidity risk, and investment risk.
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6️⃣ Credit Risk (FRM Topic 6)
7️⃣ Operational Risk (FRM Topic 7)
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[@bionicturtle]

From the discussion at www.bionicturtle.com/forum/threads/t1-1-what-is-financial-risk.21074/post-70527: There is no official risk typology. The current FRM syllabus (2018-19) assigns Crouhy's Essentials of Risk Management which contains a "typology of risk exposures" in Appendix 1.1 but it is incomplete and somewhat informed by early Basel regulations; e.g., financial risks consists of market risk (itself parsed into equity price, interest rates, forex, and commodity price risk) and credit risk, but not operational risk. Shown below are two similar perspectives. The first is my modification of Crouhy's; the second builds on Jorion's classic framework that is rooted in the FRM. From merely an exam-type perspective, here are some key ideas: While Crouhy's original typology excludes Operational Risk (and even some authors in the curriculum also exclude operational risk), we do not. As you can see from the second typology below, the firm's risks are either business or non-business (this is the first distinction because a non-financial business does not seek to avoid business risks). Non-business risks are either financial or non-financial. Classically, the domain of Financial Risk Management is non-business financial risks. At the high-level, this includes credit, market, liquidity, operational (including legal), and investment risk. Notice how this maps to Topics 5 to 8 of the FRM Part 2. While in practice they may not be excluded, from a academic (test) perspective we have excluded strategy and reputation risk. However, this seems to be changing. In particular, reputation risk seems to increasing fall under the included domain. Some of the most practical, realistic, compelling risks are obviously on the business side. Specifically, technology represents a growing factor on any risk manager's radar. This includes obvious topics like cyber-security and privacy (e.g., GDPR) but also the threats of digital disruption. A good risk manager cannot ignore these evolving forces because the business leaders cannot; if you want a "seat at the table," you need to be able to talk about these threats. 1. Typology modifies Crouhy www.bionicturtle.com/images/2016/forum/0713-risk-typology.png 2. Classic typology (based on Jorion) www.bionicturtle.com/images/2018/forum/frm-t1-1-frm-typology.jpg

[@aneeqdavid2403]

Very well explained, you are a great source and amount of knowledge is truly admirable, God bless you more

[@bionicturtle]

Thank you! Your kind words and support are very much appreciated!

[@zacharyscott3508]

What role do these videos play in conjunction with the full Part I course you offer?

[@prasannaprasantbashyal2615]

it means under financial risk we learn regard credit risk , liquidity risk , market risk and operational risk

[@exothermic2054]

I would add another arrow under Credit Risk to "Counterparty Risk" Great videos btw.

[@edmondone1984]

I'll become. a client of Bionic Turtle soon (when I'll have a little more time to study). However, if you could make the slides available with a link, it would be great

[@WildHorseProductions]

Nice. Despite going through most of your FRM part ii videos it's the first time I have seen you in person

[@bionicturtle]

I hope I am not too off-putting! I thought I'd add a personal touch :)

[@mohdmohtashim9841]

Website or any online learning program URL please?

[@bionicturtle]

Our free forum is here (50,000+ members) at www.bionicturtle.com/forum/ and our FRM self-study program is sold here at www.bionicturtle.com/features-pricing-2/ Thank you for your interest! Cheers, David

[@mohdmohtashim9841]

Bionic Turtle thank you so much.

[@muayadnajm]

I request you to please explain. Measuring the credit shock and its reflection on the financial and banking safety, and that the translation in Arabic should be activated. Thank you for your patience, sir