This lesson examines the process of managing financial risk, including interest rate, foreign exchange, and credit risk. Effective risk management is fundamental to protecting an organisation’s financial health.

5.1 Types of Financial Risk
Treasury operations expose firms to various risks: interest rate risk, foreign exchange risk, liquidity risk, credit risk, and operational risk .

5.2 Measuring and Managing Interest Rate Risk
Interest rate risk is managed using various instruments, including Forward Rate Agreements (FRAs), interest rate swaps, and interest rate futures .

5.3 Managing Foreign Exchange (FX) Risk
FX risk management involves identifying exposure, and using techniques such as forward contracts, futures contracts, and options . The lesson covers strategies including translation, transaction, and economic exposure .

5.4 Identifying and Assessing Credit Risk
Credit risk, the risk of loss from counterparty default, is a significant concern in treasury operations . The course teaches how to assess and mitigate this risk, which is particularly relevant in trade finance .