RM (Group)

• 2 questions ONLY!!
• NO introduction NO conclusion 
• Question 1 (300 words)
• Question 2 (500 words)
• Total 800 words!!
• ((Outline for each question)) in separate document.

COLLEGEOF BANKING AND FINANCIAL STUDIES

DEPARTMENT OF UNDERGRADUATE PROGRAMME

B.Sc. in Accounting, Auditing and Finance

Groupwork

Assessment Component 30 %

Student Name & Student ID	1- Dunya Hamood Albreiki (ST09019) 2- Rayan Zubair Albalushi (ST09924) 3- Muadh Yahya Aljahdhami (ST09348)
Semester	3	Fall 2020-2021

Task 1

Basel II provides reforms to banking supervision and operational risks that reserve the availability of risks and uncertainties in business. Also, it is quite evident that businesses for several years have been aware of the internal and external operational factors. Rogue trader risks are comprised of the high risks that are accompanied by huge investments (Leshkowich, 2014). Rogue traders try to act recklessly and independently in the detriments of the trader and the clients. High-risk investments play around with high risks that either result in huge losses or profits. People’s risk is the uncontrollable risk, and people try to break or change and discover it in the follow-ups in how they can manage it. However, under the Basel Committee’s categorization or operational risks, the rogue trader risk falls under the ‘people’s risk’ category (Beunza, 2019). This section accounts for errors and misdeeds that are carried out by employees. Rogue trader risk falls under people risk because it is portrayed with high cases of risk investment that are uncontrollable. For instance, the military fights to win wars in a decisive fashion and without any damages. Also, in Bing Bang ‘financial markets’ of the 1980s and 2000s there was increased sophistication of financial services around the world (Fox et al, 2019). This created complexities in banks and most firms globally. Also, the United States financial indicated failure due to the failure of credit and finance risks. This change was felt worldwide and affected a larger number of the finance and the finance market sectors. This is an indication of rogue trader risks that are uncontrollable once they occur. They lead to increased sophistication of the resources that are applied and this leads to different risks among firms.

Task 3

1. Operational risk is defined as the change in value that is caused by actual losses due to failed or inadequate or failed internal processes, people, and systems and differs from the expected resources (Gatzert & Kolb, 2014). The external event is inclusive of the legal risks that are used and applied to have the main concepts that are applied and required in any business. Managing operational risk has been an important sound risk, a management plan in modern financial markets due to the increased transactions, growth of e-commerce, and the emergence of large service providers. Effective operational risk control is based on strong internal control; cultures, as well as contingency planning, are some of the crucial operational risk management (Kallenberg, 2009). Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people, and systems or external 496 events. The definition encompasses legal risk but excludes strategic, reputational, and systemic risks. Also, operational risk has some form of link between credit and market risks. An operational problem with a business transaction could trigger a credit or market risk (Power, 2005). An effective operational risk management strategy requires that Boards should recognize that operational risk is distinct and controllable and should put in place appropriate risk management policies, procedures and practices, independent audit, and review mechanism. These crucial planning sectors provide the application procedure of ensuring it is controlled in the long run of the businesses.

1. Market risk is quite evident on how best there can be losses experienced by an investor and this affects the overall performances of the financial markets. Also referred to as systematic risk; however, it cannot be eliminated through diversification and can be eliminated in different ways (Lewis, 2016). Markets risks are measured in several ways and this has created the norm that is quite evident on how best it cab applied in the long run. Market risk is hedged by different investors by the use and the application of volatility that allows preventing the follow through and application procedures of the market. Investors are using hedging strategies to control the follow through and the application of the best workforce (Wieczorek-Kosmala, 2014). This can be done by investors targeting specific securities, and this will ensure they are bought and this will provide better mechanisms in the long run. The hedging strategies that have been applied have led to inclusion and better forums that create and adopt different application procedures in the long run of businesses for an equipped work ethic. Value at risk is the method that has been used mostly to cater to and provide the follow-through mechanisms for the success of the business.

References

Beunza, D. (2019). Managers. In Taking the Floor: Models, Morals, and Management in a Wall Street Trading Room (pp. 98-119). PRINCETON; OXFORD: Princeton University Press. doi:10.2307/j.ctvdf0jcs.9

Fox, M., Glosten, L., & Rauterberg, G. (2019). The Social Function of Stock Markets. In The New Stock Market: Law, Economics, and Policy (pp. 33-58). New York; Chichester, West Sussex: Columbia University Press. doi:10.7312/fox-18196.6

Gatzert, N., & Kolb, A. (2014). Risk Measurement and Management of Operational Risk in Insurance Companies from an Enterprise Perspective. The Journal of Risk and Insurance, 81(3), 683-708. Retrieved December 6, 2020, from

http://www.jstor.org/stable/24548086

Kallenberg, K. (2009). Operational Risk Management in Swedish Industry: Emergence of a New Risk Paradigm? Risk Management, 11(2), 90-110. Retrieved December 6, 2020, from

http://www.jstor.org/stable/40468433

Kim, R., & Paté-Cornell, E. (2019). Managing the Risk of Satellite Collisions: A Probabilistic Risk Analysis of Improving Space Surveillance Systems. Military Operations Research, 24(3), 49-72. doi:10.2307/26796827

Leshkowich, A. (2014). Inside and Outside: Sociofiscal Relationships and the Risks of Doing Business. In Essential Trade: Vietnamese Women in a Changing Marketplace (pp. 97-126). Honolulu: University of Hawai’i Press. Retrieved December 6, 2020, from

http://www.jstor.org/stable/j.ctvvn5j9.8

Lewis, J. (2016). Managing Risk for the Internet of Things (pp. 1-20, Rep.). Center for Strategic and International Studies (CSIS). doi:10.2307/resrep23321.4

Power, M. (2005). The Invention of Operational Risk. Review of International Political Economy, 12(4), 577-599. Retrieved December 6, 2020, from

http://www.jstor.org/stable/25124039

Wieczorek-Kosmala, M. (2014). Risk management practices from risk maturity models perspective. Journal of East European Management Studies, 19(2), 133-159. Retrieved December 6, 2020, from http://www.jstor.org/stable/24330969