FI Case Study

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Why do we manage Risk in FIs?

We manage risk in FIs to protect them from volatility in the financial markets and to make future cash flows more predictable. Perhaps FIs should ensure that there is sufficient liquidity available to meet all the obligations in a timely manner. For example, the financial controller of the institution identifies the entity’s currency risks, while the treasurer advises on the best means to hedge the risk through: forward contracts, future contracts or foreign exchange options. The steps in the risk management process in FIs involves: determine the corporation’s objectives; identify the risk exposures; quantify the exposures; assess the impact; examine alternative risk management tools; select appropriate risk
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Although good CGP of any FIs either domestic or international is fundamental to its very existence, this topic has become a lightning rod for many organisations and governments institutions leading to both business and political debate in the last few years. Perhaps, spectacular failures in CG of many FIs as seen in the recent financial crisis have raised issues about ethical behaviour and culture of the conducting business in the board of many FIs indeed.

The single principal objective of CG is the optimization of returns while increasing values to the shareholders. Meanwhile, in order to achieve this goal, good CG practices should focus the attention of the board of directors of FIs by developing and implementing a strategy that ensures corporate growth while improving the value of the FIs equity. HANDOUT
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CG as a mechanism is the creating of balance between shareholders and board management that is used to reduce agency problems. Put in another form CG is the system by which financial institutions and companies are directed and controlled (UK Code – Cadbury Committee, 1992). “The procedures and processes according to which an organization is directed and controlled” (Central Bank & FSAI, 2010). Moreover, CG is concerned with the structures and systems of control by which FIs Chairmen/CEO are held accountable to those who have a legitimate stake in an organisation. The Cadbury Report (1992) report which was published in 1992 titled ‘Financial Aspects of CG’ is a report of a committee chaired by Adrian Cadbury that sets out recommendations on the arrangement of company boards and accounting systems to mitigate CG risks and failures

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