SUPPLEMENTARY: Risk Management Framework and Measuring Answer ANY FOUR (4) questions in this section. [100 MARKS QUESTION 1 (25 Marks) Credit risk is the likelihood that a debtor or financial instrument issuer is unwilling or unable to pay interest or repay the principal according to the terms specified in a credit agreement resulting in economic loss to the banking institution. In a banking institutions portfolio, losses also stem from reduction in portfolio value due to actual or perceived deterioration in credit quality. Credit risk emanates from a banking institutions dealing with individuals, corporates, other banking institutions or a sovereign. For most banking institutions, loans are the largest and most obvious source of credit risk; however, credit risk could stem from activities both on and off balance sheet. Adapted: Reserve Bank of Malawi (2007), Risk Management Guidelines for Banking Institutions, Supervision of Financial Institutions. 1.1 In that context, evaluate the typical definitions of likelihood and also the definitions of impact in risk Management as used and applied in any organization of your choice. (10 marks) 1.2 Critically discuss the FOUR (4) Ts of hazard response as applied in your organization and /or any organization of your choice. (15 marks) QUESTION 2 (25 Marks) The main purpose of risk assessment is to determine whether the risk level is acceptable according to risk appetite. Risk level commonly determined through combination of consequences and likelihood. The consequence is an outcome of an event that affecting objectives and consequence can be certain or uncertain and can have positive or negative, direct or indirect effects on objectives. At the same time, consequences can be expressed qualitatively or quantitatively. Adapted: Ramly, E.F. and Osman, M.S. (2018), Development of Risk Management Framework Case Studies, Proceedings of the International Conference on Industrial Engineering and Operations Management Paris, France, July 26-27, 2018 2.1 In that context of the above extract, critically evaluate what you understand by risk assessment and discuss ANY FOUR (4) techniques of risk assessment that are used in your organization. (10 marks) 2.2 Comprehensively discuss ANY FOUR (4) benefits of Enterprise Risk Management in any organization of your choice. (15 marks) QUESTION 3 (25 Marks) Critically evaluate ANY TEN (10) risk description characteristics as postulated by Hopkins, 2005: 17. Which of these risk descriptions links to your organization? QUESTION 4 (25 Marks) 4.1 In the context of any organisation of your choice, critically evaluate the term Enterprise Risk Management and discuss the THREE (3) dimensions in which an ERM is arranged. (15 marks) 4.2 Discuss the importance of risk appetite in Risk Management within your organisation. (10 marks) 2 DN QUESTION 5 (25 Marks) An institution's internal control structure is critical to the safe and sound functioning of the institution generally and to its risk management system, in particular. Establishing and maintaining an effective system of controls, including the enforcement of official lines of authority and the appropriate separation of duties such as trading, custodial, and back-office is one of management's more important responsibilities. Indeed, appropriately segregating duties is a fundamental and essential element of a sound risk management and internal control system. Failure to implement and maintain an adequate separation of duties can constitute an unsafe and unsound practice and possibly lead to serious losses or otherwise compromise the financial integrity of the institution. Serious lapses or deficiencies in internal controls, including inadequate segregation of duties, may warrant supervisory action, including formal enforcement action. Adapted: Reserve Bank of Malawi (2007), Risk Management Guidelines for Banking Institutions, Supervision of Financial Institutions. 5.1 In this context, what do you understand by the term risk control and discuss ANY TWO (2) hazard controls that can be used to mitigate against risk in any organization of your choice. (10 marks) 5.2 In light of the above extract, define residual risk and discuss the THREE (3) broad categories of risk as defined by the Risk Management Guidelines for Banking Institution in the SADC region. (15 marks) END OF PAPER