Protecting Against or Minimizing Loss

Protecting Against or Minimizing Loss

Please read http://threadcontent.next.ecollege.com/pub/content/e6fe8f11-90ce-4102-940d-a438426e6e92/SU_FIN4101_W5_A1_Article.pdf

Part 1: Calculating Loss

1. You are asked to solve a problem involving an operational risk event, whose likelihood of occurrence in an institution is once every 200 years. The expected loss as a result of this event is between $25,000,000 and $100,000,000 with equal probability of loss within the range and zero outside the range.

A. Based on this information, determine the fair price of insurance required to protect a loss of over $80,000,000 for this operational risk. Recall how to compute this type of risk. Remember that the frequency of this event is once every 200 years multiplied by the ratio of the range to the total range. What is the expected loss? Provide your calculations and explanation.

2. A popular trend in risk management is the role of an organizational CRO. Read Russ Banham’s article Top Cops of Risk for his perspective on this new role.

A. Based on concepts you learned in previous weeks and on this week’s reading, analyze the accuracy of Banham’s opinions on CROs.

Part 2: General Questions

1. The definition of operational risk is widely accepted by academics and practitioners, but there is a great deal of debate about its application. Discuss. 2. Recent trends in the energy industry have made risk management an imperative. Discuss. 3. Analyze the relationship between organizational culture and operational risks. What internal controls can be implemented to identify and mitigate culture-related risks?

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