Evaluation

Evaluation Component Assignments Quizzes Class Participation Mid Term End Term Weightage 15% 15% 10% 30% 30%

Financial Risk Management

No extra work above the aforementioned will be accepted or credited.

Team Assignment
Team of 5 members Presentation of project Submission of project report Submission guideline: topic name_contact person full name Soft copy submission: pcbiswal@mdi.ac.in

A Risky World
And it just seems to be getting Riskier, more so financial markets!!!

RISK MANAGEMENT IN AIRLINES

Financial Risk Management in Aviation Sector

Source: DGCA Report

Source: DGCA Report

Source: DGCA Report

Source: DGCA Report

Operating Cost Matix

Source: Bravia Capital 2012

Source: ICRA Research 2012

Fuel Cost as % of Gross Sales

Source: ICRA Research 2012

Source: Bravia Capital 2012

Spice Jet ( In Millions)

Source: Spice Jet Annual Report 2011 -12

Source: Spice Jet Annual Report 2011 -12

Spice Jet ( In Millions)

Air India FRM

Source: Spice Jet Annual Report 2011 -12

Source: Air India Annual Report 2010 -11

Kingfisher ( In Lakhs)

FRM: Risk vs. Exposure

Probability of loss
High prob. with small size High prob. with huge size

Low prob. with small size

Low prob. with huge size

Possibility of loss Source: Kingfisher Airlines Annual Report 2012-13

Risks
Types of risks Types of financial risks Financial risks of a non-financial firm Financial risks of a financial firm

Financial Risks: Risks of NFOs

Market Risk
Interest rate risk Price Risk Foreign exchange risk

Credit risk

Interest Rate Risk

The risk incurred by a FI when the maturities of its assets and liabilities are mismatched
Refinancing risk Reinvestment risk

Price Risk
Price risk is usually measured as the potential gain/loss in a position/portfolio that is associated with a price movement. Stock price risk, bond price risk, commodity price risk

Foreign Exchange Risk

The risk that exchange rate changes can affect the value of an FIs assets and liabilities located abroad
Transaction exposure Translation exposure Competitive exposure

Credit Risk
The risk that the promised cash flows from loans and securities held by FIs may not be paid in full.
Firm-specific credit risk Systematic credit risk

The magnitude of credit risk of a firm is described by credit rating.

Risks of Financial Companies

Credit risk Market risk Operational risk

Dealing with Risk

Accept Avoid Manage

Risk Management
Risk management is a process by which a company alters the risk it faces to make it equal to the risk it desires. Greg Krissek

Risk Management Tools

Insurance Diversification Hedging

Diversification as FRM Tool

Diversification among counterparties reduces default risks Diversification among investment assets reduces the magnitude of loss Diversification of customers, suppliers, and financing sources reduces transaction risks

Risk Management and Firm Value

RM makes cash flows as smooth as possible RM ensures future capital investments RM reduces the costs of financial distress RM may reduce the tax burden RM may lead to better performance evaluation

Steps for Better Risk Management

a dollar not lost is a dollar earned

Thank you!

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