The Essentials of Treasury and Liquidity Risk Management in FRM® Course | EduPristine

Welcome back, learners, to another insightful blog post on Treasury & Liquidity Risk Management within the FRM® Course curriculum. In this post, we’ll explore the essence of treasury risk management & liquidity risk management and steps towards managing the same. We’ll also discuss how you can master this crucial topic through the FRM® course subjects offered by EduPristine, equipping you with the knowledge and skills needed to excel in the field of FRM®.

What is FRM® Course?

FRM® stands for Financial Risk Manager; so, as the term suggests, this course is all about in-depth study of Risk Management. This designation is offered by GARP® i.e., Global Association of Risk Professionals.  

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What is Treasury Risk Management?

Treasury risk management is a broader concept within which liquidity risk management exists or you can say it is a part of treasury risk management. We will learn about liquidity risk management after treasury risk management. Treasury risk management focuses on the overall financial situation of a firm which is inclusive of debts, investments etc. Treasury risk management focuses on creating a backup for various situations to minimize/mitigate the risk a situation might cause the firm or at least the firm is ready to face the risk.

Steps Towards Managing Treasury Risk

1. Identify the risks : First step is to identify the risk a firm or financial institution is facing such as liquidity risk, credit risk, market risk, operational risk. There on identifying the causes for the same and how it can be a disadvantage for the firm. 2. Assess the risks : Second step is to assess each risk so here a firm or financial institution will have to look back at the historical data in order to track the vulnerability of the risk if occurred. 3. Evaluate the risks : To make this simpler let me break it down into smaller parts so one-part highlights that how much risk a firm is willing to accept, second highlights whether the current processes & controls are enough to manage the risk & third highlights the importance or need of alterations or additions to the process if needed. The major focus here is all about how much risk a firm can bear.  

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4. Respond to the risks : The fourth step is all about implementing the strategies in order to respond to the risks. Now this can include responses such as diversification i.e., dispersing the investments into multiple funding sources; policy changes i.e., to reduce a particular type of risk some processes would be changed depending on time-to-time basis. 5. Report the risks : Lastly this step is all about ensuring transparency while reporting risks. A firm can use different metrics in order to calculate risk. They should make sure to have the reports on a frequent basis to keep the stakeholders informed. In case of any discrepancies the risk(s) should be identified, assessed, evaluated & responded to as and when the need occurs. This is a continuous cycle as it’s absolutely essential for a firm which also helps in keeping the risk bearing appetite of the firm in check.  

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Steps Towards Managing Treasury Risk

Liquidity risk management is a part of treasury risk management. Now let’s start by breaking the two terms liquidity & risk. Starting with liquidity; it means having money on time to pay bills. Risk means there is a possibility of not having the money on time to pay bills. Now putting both the terms together it means that liquidity risk is when a financial institution is unable to meet its short-term obligations. Finally, liquidity risk management states that it is a process to plan and be prepared with enough backup or assets which can be converted into cash whenever a short-term debt arises.

Steps towards managing Liquidity Risk

1. Funding diversification : This concept is very simple to understand; a financial institution or a firm should make sure to diversify their funds into multiple funding sources. This eliminates the dependency on one single funding source simultaneously helping with liquidity risk management. 2. Develop accurate cash flow forecasts : A firm or financial institution should develop accurate cash flow forecasts to keep track of their short-term debts, liabilities that are due; simultaneously keeping in check how the cash positions would perform against them. 3. Have policies and guidelines in place for decision-making : In order to maintain good financial position, a firm or financial institution should have a set of guidelines while investing this will prevent them from making repetitive mistakes that could have a negative impact on the firm.

FRM® Course offered by EduPristine

EduPristine offers the Financial Risk Manager (FRM®) Course which is administered by the Global Association of Risk Professionals (GARP®). EduPristine provides both Classroom Training (in Mumbai) & Live Virtual Classes (Online) at no extra cost along with soft skills training & placement assistance. Alongside EduPristine provides practical & experiential learning. Here we have excellent faculty i.e., industry experts to teach you. You can even go through the testimonials provided by our learners. Conclusion: So here we come to the end of this blog post. Hope you now have a basic understanding of the market risk in the FRM® Course. If you’re eager to know more about the FRM® course details, FRM® course fees, FRM® course duration, FRM® course eligibility, FRM® course syllabus & how to apply for FRM® course connect with the EduPristine team ASAP on the handles mentioned below. See you in our next blog post until then keep learning, keep growing.