Risk Management in Banking

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Introduction

During 2000 BC, the development of banking industry emerged. The exchange of grain or goods between farmers and merchant were termed trading. Bank is financial intermediaries which accepts deposits from general public and organizations and are engaged in lending activities. In other word, banking business is the business of receiving money from the market through deposits and paying or borrowing the fund to the capital market and general public as well. Banks undertake various financial activities such as investment banking, private banking, insurance, consumer finance, corporate banking, foreign exchange trading, community trading, future and options trading, money market trading etc.

Commercial bank generally accepts deposit from the general public and lends money as loan to households, firms, and government as well through various account types as saving accounts, personal loans etc. Other types of bank are investment bank that collects capital by underwriting or by acting as an agent in the issuance of shares. They do not take deposits from customers.

The Australian banking system is liquid competitive and well developed. Australian banking industry consists of a number of banks licensed to carry on banking business, under the Banking Act 1959. Under the same act, foreign banks are licensed to regulate their business through a branch in Australia and Australian – incorporated foreign bank subsidiaries.

Risk Management:

It is one of the most important parts of the management function of organisations. Risk environment should be analysed in order to apply appropriate controlling measures and monitor the effectiveness of the control measures applied. The bank’s management is actively responsible in the...

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...that includes exchange rate risk, portfolio risk, interest rate risk, credit risk and operation risk. Each of the risks have their own effect on the business procedure. Therefore, banks perform their risk management procedure to minimize or eliminate the risks. Various tools are used in this risk management process such as diversification, currency hedging, regression, portfolio investment etc.

Reference:

 International finance magazine (2013) Retrieve from http://www.internationalfinancemagazine.com/article/Australian-overnight-interest-rates-kept-unchanged.html

 Banking and Finance Update (2013)- Retrieve from www.ashurst.com

 Annual Report (2013)- Retrieve from http://www.rba.gov.au

 Operation in Financial Market (2013)- Retrieve from http://www.rba.gov.au

 International Finance Magazine. (2013). Risk Management In Banking Industries

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