Module 6: Basics of Risk Management

Module 6: Basics of Risk

• This module covers the fundamental concepts of risk.
• The module includes learning objectives, a road map, and case studies.

Learning Objectives

• Understand what risk is and its various types.
• Understand the role of risk management and for whom it is useful.
• Understand risk mitigation strategies and who is responsible for them.
• Examine real-world examples of risk materialization.

Basics of Risk Management

• Risk management is the process of identifying, quantifying, and monitoring uncertainties.
• Risk management has a strong conceptual connection to the risk-return relationship.
• Identifying who benefits from risk management is an essential part of the process.

Financial Analysis & Capital Markets

• The module incorporates a diagram illustrating the connection between financial analysis, corporate governance, risk management, banking supervision, capital markets and various specific topics.
• There are multiple elements under each category, including sections on corporate governance, financial analysis and business strategy, credit risk, credit rating agencies, investment banking, portfolio theory, mergers and acquisitions, and financial databases.

Modules Topics and Structure

• The module is structured with a road map encompassing sections on what is risk (main types); is risk management useful (for whom?) and materialization of risks and economic crises/case examples.

Case Studies

• 2008 global financial crisis
• Eurozone crisis 2008-2012
• The 2008-2012 recession that affected countries: Greece, Ireland, Portugal, Spain, Italy, Cyprus, and Iceland.
• Financial contagion among banks and nations

Who are the Major Stakeholders?

• It is crucial to understand the relevant stakeholders that can control risk, for example, in a banking system.

Risk Management – Types of Risk

• Credit risk is a significant type of risk.
• Other key types of risks include operational, market, sovereign, concentration, liquidity, strategic and systemic.

Basic Information about Risk

• The traditional definition of risk focuses on exposure to danger and threats; it is usually considered negative.
• Chinese philosophy presents an alternative perspective on risk, highlighting that a crisis contains an opportunity.

Further Topics

• The module discusses modules concerning the three lines of defense (risk management in a financial institution)
• There is discussion about whether risk management is useful and for whom.
• Discussion on the impact of the pandemic on the Cyprus economy (compared to the 2013 crisis)

Nobel Economics Prize

• The Nobel Prize in Economic Sciences for 2024, which is important for its relevance to addressing crises caused by pandemics and geopolitical tensions.