FINANCIAL RISK MANAGEMENT CERTIFICATION COURSE

officer (or chief risk management officer), whose primary responsibility is ERM. The chief risk officer is typically accountable to the board of directors for the measurement, management, and reporting of risks faced by the firm. Published standards, including the International Organization for Standardization (ISO) 31000 standard (revised in 2018), provide a framework and process for managing enterprise risk.

This module begins with reviewing general risk management principles, including outlining the overall risk management process, policy, and oversight. The section is followed by a discussion of the various types of enterprise and operational risks, along with techniques for measuring risk such as Sensitivity Analysis, Scenario Analysis, Value at Risk (VaR), Cash Flow at Risk (CaR), and Monte Carlo Simulation. The module closes with a discussion of insurance as part of the risk management process by transferring risk via insurance, dealing with insurance providers and brokers, insurance risk management services, and risk-financing techniques, and a brief discussion of disaster recovery and business continuity plans.

Financial Risk Management

The previous module introduced a standard process for enterprise risk management, which involved identifying, measuring, managing, and monitoring risks. This module builds on that framework by discussing the primary tools and techniques used to manage financial risks.

In most firms, the treasury department is responsible for financial risk management. Since the treasury department is a clearinghouse for daily financial information, treasury professionals are well-positioned to understand and control a firm’s exposure to financial risks. For domestic firms, interest rate risk has traditionally driven financial risk. However, increased globalization and international trade have created a corresponding need to manage foreign exchange and commodities risk.

This module begins with an overview of financial risk management, including discussing the three primary areas of financial risk, interest rate risk, foreign exchange (fx) risk, and commodity/input price risk. Next, the derivative products, forwards, futures, swaps, and options used to hedge financial risks are described. Following this discussion, examples are provided that apply these derivatives to managing interest rate and foreign exchange risk. The module closes with discussing other issues pertinent to financial risk management, accounting and tax issues, and hedging policy statements.

Treasury Policies and Procedures

Organizations use policies to identify and describe key risks and establish essential limits, guidelines, accountabilities, and risk management practices. A policy guides activities in a particular area and establishes performance evaluation guidelines and process measurements. Meanwhile, a procedure is a specified series of actions or operations that should be executed consistently to achieve the desired results identified in the policy. In other words, procedures should follow the policy’s guidelines and are how the policy is implemented. Policies should be clearly stated and enforced, as they are the basic principles, often approved by the board of directors, by which an organization operates.

This module provides an overview of the role of treasury policies and procedures and key control considerations for treasury policies. It discusses the key elements needed in developing an effective policy statement, objectives and scope, developing the policy, policy approval, procedure development and implementation, and policy review, updates, and revisions.

The module concludes by providing a list of key treasury policies: liquidity management policy, bank account and financial services authority policies, payments policy, wire transfer policy, credit and collections policy, cash flow forecast\ng policy, short-term and long-term investment policies, investment valuation and impairment policies, payment card policies, merchant card policy, outsourcing policy, financial risk management policies, regulatory compliance policies, funding/financing policies, dividend policy, treasury systems policy, and cyber risk management policy, and the elements considered when developing them.