Study on Credit Risk and Credit Risk Management

Study on Credit Risk and Credit Risk Management Abstract The purpose of this research is to make clear the importance of credit risk management and how the firm can get the benefit by using different methodologies by different actions of credit risk management. Introduction Many institutions such as banking and enterprises are well-known to its clever usage of financial sources. The correct management of the financial sources and attributes makes it spirited for the organization to tolerate the different economic uncertainties and threats. In addition, the strategy on managing the risks can be the most attractive strategy of the company that cannot be deteriorated but can be passed through the next generations of other managers. Background and problem statement The evaluation of risks can be the fundamental strategy in all of the organizations. Through the assessment of the risks, the organization can create a subjective decision and well plan. This all can help the accomplishment draw out from the process. In the classification of various system that are concerned in the assessing and managing the risk, the credit risk management is an rising activity that lies within the organization. Many researches attempted to answer the remuneration of the credit management within the organization. However, it remained indistinct for the management on how to manage and the principle of the credit risk management. Literature Review The credit risk management is accepted among the banks and other financial resources. The main purpose of the credit risk management is to minimize or diminish the possessions of the non-performing loans came from the consumers. The procedures and processes of the banks and their affiliates create a great collision in the flow of the financial resources. However, various economic reservations, international markets, or financial constraints can cause the financial status to be unbalanced. Aside from the financial deficiencies, the other causes of the financial constraints are the lack of buoyancy among the financial market to provide external help for the needed consumers, lack of potential to gather the information of the consumers, and the lack of push to have an forceful debt collecting. The non-performing loans can definitely cause too much stagnation of the financial sources. To provide the credit risk management efficiently, the banks and other financial institutions should ass es the reliability of the loaners. In terms of an enterprise, the estimation of their credit portfolio is enough to provide a system that continuously promotes the reviewing the risks and the ability of the business enterprise to pay. It is very common that the banking process restrict the occurrence of the risks during every transaction; for this reason, the bank managers should also rely on the effectiveness of the imposed regulations to predict the future risks.   From the different financial indicators, the position of the institution on the market disappointment are still depends on the internal process and the actions of the people. The economic theory in banking encompasses the interest and income theory in which is the basis of the cash flow approach in bank lending (Akperan, 2005). Credit risk management needs to be a vigorous process that enables the banks to proactively manage the loan portfolios to minimize the losses and earn an acceptable level of return to its shareholders. The importance of the credit risk management is recognized by banks for it can establish the standards of process, segregation of duties and responsibilities such in policies and procedures sanctioned by the banks (Focus Group, 2007). Credit risks appear in banking institution because of the uncertainties plagued the financial system. The uncertainties remain a major challenge in country. Still, the major approaches applied by the banks are the continuing efforts on research and close monitoring. Banks believe that the research and monitoring are the key sources of uncertainties like data generating institutions and the treasury (Uchendu, 2009). The market structure is important in banking for it influences the competitiveness of the banking system and companies to access to funding or credit investment. The economic growth affects the structure and development of the banking system. In addition, the vast knowledge in risk assessment and managerial approach is recognized as part of the development. Moreover, because the banks and the processes are highly regulated, it became very useful in assessing the effects or impact of the credit risk management in the banks and even in other financial sources (Gonzalez, 2009 ). Research Objectives The first objective of the study is to convey the purpose as well as the center of the credit risk management. Second is to determine the different actions of the management or the managers regarding the credit risk management. Through this two interconnected objectives, the study can ascertain its common ground in discussing the essential parts of the credit risk management. The credit risk management is admired among the banks and other financial resources. The main purpose of the credit risk management is to reduce or diminish the possessions of the non-performing loans came from the consumers. Credit risk is an investors risk of loss arising from a borrower who does not make payments as promised. Such an event is known as a default. The other term for credit risk is default risk. Investor losses include lost principal and interest, decreased cash flow, and increased collection costs, which arise in a number of circumstances. Consumer does not make a payment due on a mortgage loan, credit card, line of credit, or other loan .Business does not make a payment due on a mortgage, credit card, line of credit, or other loan .A business or consumer does not pay a trade invoice when due .A business does not pay an employees earned salaries and wages when due A business or government bond issuer doesnt make a payment on coupon or principal payment when due .An insolvent insurance company does not pay a policy obligations .An insolvent bank wont return funds to a depositor .A government grants bankruptcy fortification an insolvent consumer or business .There are three types of credit risk. Default risk Credit spread risk Many companies use credit to pay for short-term supplies or to finance long-term growth. While most companies view loans and credit lines as a important part of business, those who understand how to alleviate credit risk are far more likely to succeed. This is because those lending money are viewing at credit risk when issuing any type of loan or credit line. To lessen credit risk a company wants to be sure it is not seeking more credit than it can credibly repay in a timely fashion. An emerging company may not want to grow in phases that allow it to recoup some of the debt spent. Companies can increase their credit rating, thus mitigate their credit risk, by starting to set up credit long before they need it. This can be adept with vendor credits, small business credit cards and loans. Your average balances in your bank accounts also help set up a lower credit risk. After all, if you have had an account for a long time with money in it to wrap debts and obligations, you are seen as credit-worthy. Mitigating credit risk Lenders mitigate credit risk by using several methods: Risk-based pricing: The Lenders generally charge a higher interest rate to borrowers, who are more likely to default, a term called risk-based pricing. A lender considers factors related to the loan such as loan purpose, credit rating, and loan-to-value ratio and estimates the effect on yield (credit spread). Covenants: Lenders may write provisions on the borrower, called covenants, into loan agreements: Periodically report its financial state. Cease from paying dividends, repurchasing shares, borrowing further, or other specific, voluntary actions that negatively affect the companys financial position Repay the loan in full, when the lender request, in certain events such as changes in the borrowers debt-to-equity ratio or interest coverage ratio Credit insurance and credit derivatives: The Lenders and bond holders may evade their credit risk by purchasing credit insurance or credit derivatives. These contracts move the risk from the lender to the seller (insurer) in exchange for payment. The common credit derivative is the credit default swap. Tightening: Lenders can overcome credit risk by reducing the amount of credit extended, either in total or to certain borrowers. For example, a distributor selling its products to a disturb retailer may attempt to lessen credit risk by reducing payment terms from net 30 to net 15. Diversification: Lenders to a small number of borrowers (or kinds of borrower) face a high degree of random credit risk, called concentration risk. Lenders lessen this risk by diversifying the borrower pool. Deposit insurance: Many governments set up deposit insurance to guarantee bank deposits of insolvent banks. Such protection discourages the consumers from withdrawing money when a bank is becoming insolvent, to shun a bank run, and motivate consumers to holding their savings in the banking system instead of in cash. Credit risk is risk due to uncertainty in a counterpartys (also called an obligors or credits) capability to meet its obligations. Because there are many types of counterparties—from individuals to partners and sovereign governments—and many different types of condition—from auto loans to derivatives transactions—credit risk takes many forms. organizations manage it in different ways. In evaluating credit risk from a single counterparty, an institution must consider three Default probability: What is the probability that the counterparty will default on its obligation either over the life of the compulsion or over some specified horizon, such as a year? Calculated for a one-year prospect, this may be called the expected default frequency. Credit exposure: In the experience of a default, how large will the outstanding obligation be when the default occurs? Recovery rate: In the event of a default, what portion of the exposure may be recovered through bankruptcy actions or some other form of settlement? When we speak of the credit quality of a requirement, this refers generally to the counterpartys capability to perform on that obligation. This encompasses both the obligations default probability and estimated recovery rate. To place credit exposure and credit quality in perception, recall that every risk include two elements: exposure and uncertainty. For credit risk, credit exposure represents the former, and credit quality represents the latter. Conclusion: From the above mentioned description it has cleared that credit risk management is the important aspect of any organization. If the management keeps in mind the methodologies and techniques mention in this study paper it can overcome this risk and can increase the value of the business.

Adopting Children by Same Sex Parent Essay

People in society say that everyone is equal, they have equal right and freedom. However in case of adopting children, people believe that same sex parents are abnormal to adopting children. Some people in society against them to adopting but there are many same sex couples who are seeking to adopt children. The researcher of homosexuality found that many people still do not reveal their sexual orientation to others. Also, same sex couples are not acceptable from some people in society, according to www. gay-adoption. s. On the contrast, some people believe that same sex adoption is normal and it should be acceptable, according to the right human campaign, a national gay and lesbian advocacy group. Although there are many people against same sex couple to adopting children, same sex couples should be allowed to adopt children because they have equal rights and they can be good parents for a child who lacks love and home. Moreover, children in the United State of America and many countries around the world are waiting for adoption. There are about 520,000 children in welfare, according to the North American Council on Adoptable Children in St. Paul. In addition there have 120,000 are available for adoption, but only 50,000 find permanent homes each year. However, although same sex couples want to adopt children, they are against by heterosexual parents for several reasons including it is unnatural to allowed same sex to be a parent, same sex parents cannot give stability to children and most people believed that only heterosexual parents can be good parents. Firstly, it is unnatural to allow homosexual couples to be a parent. They cannot be good parents. Also, it is not safe for children to live with same sex parents. The best environment for well-being of children is a household with a mother and father because children should have a role model. Adopting by same sex parents can effects to children. For instance, children who is raised in a homosexual household are significantly more likely to be homosexual themselves because they have only one role model in one gender, and get involved in homosexual behavior than children raised in heterosexual households, according to a research in the US (University of Illinois Law Review, 1997). In a study published in the January 1996 issue of Developmental Psychology, London researchers Susan Golombok and Fiona Tasker found that it danger for children that live with same sex parents. However, the sexual orientation of parents has no influence on the sexual orientation of their children and that children of lesbian and same sex parents are not more likely than any other children to grow up to be homosexual, according to Children of gay fathers, Gay and Lesbian Parents (p. 9-57) In addition, children can manage their life to be what they want to be by themselves, however they are raised by homosexual parents but it is not determine that they may have the same behavior as their same sex parents. Moreover, same sex parents can give a responsibility and love to children as well as a heterosexual because they are a human who can teach and give love to a child. As such, it would be wrong to deny same sex parents to adopt children. Also, good parenting is not controlled by sexual orientation, same sex parents can support children and give love to them that show they can be a good parent same as a heterosexual. Secondly, the reason why people believe same sex parents should not be allowed to adopt is stability, so it is important in raising an emotionally and mentally healthy child. The way to children grow up happily may need a role model, so children need a role model of both genders that are male and female in order to develop a properly. If children raise in homosexual household, it influence to children will lacks information of other gender. Children’s primary role models are his or her parents that cause bringing a heterosexual up in a homosexual household can gives children a misrepresented view of sexuality. Homosexual couples simply cannot give the stability that heterosexual parents can give to children. Although most people believe that bringing a heterosexual child up by same sex parents give them a distorted view of sexuality, some babies are born with a predisposition to homosexuality and their upbringing will not affect their sexuality. Almost of homosexuals couples do not want to force children to be homosexual like them. According to Major associations of mental health professionals in the United stated of America, same sex parents are not an unfit and capable as heterosexual parents that they lead children are as happily, healthy and well adjusted as a child who is raised by heterosexual parents. In addition, a studies shows that children raised by single heterosexual parents have more difficulties than children who have same sex parents. Moreover the study shows that children did better in moderation, self-esteem, and had less psychosocial difficulties at home and at school, according to the study of Same-Sex Parents Raise Well-Adjusted Kids. The last reason is widely agreed that only heterosexual parents can be a good parent and they are appropriate to give love, warm, and home to children. Children should have opportunities to thrive in heterosexual parents with a mother and father based family. Heterosexual parents are the best because a child should be raised in loving, well-disciplined homes where children have good role models from their heterosexual parents, also avoiding children grow up to be a homosexual, according to study of gender identity disorder and psychosexual problems in children and adolescents. In addition, avoiding from criminal because homosexuals are more likely to molest children, such as rape them. It is danger to children’s life and causes many troubles to society. However, there are about 500,000 children in welfare nationally in the United state and about 100,000 children need to be adopted. So it is shows thousands of children lacks a permanent home and lacks love from parents, according to the statistics of the study of critical shortage of adoptive and foster parents in the United States. If they are only allowed heterosexual parents in adoption, the child who lives in foster care will lacks family and as in Florida more than 2,000 children in welfare are waiting for adoption according to the state of Florida’s statistics. In addition, there are not enough heterosexual parents who are interested in adoption and foster care. There are some arguments of adopting children by same sex parents because most people feel that only traditional homes with a father and a mother are appropriate and have equal right as heterosexual parents to adopt children, according to issue about facts on gay adoption. However, society is change that leads everyone has equal rights. Therefore same sex parents are human being who should be allowed to adopt children. All people should have equal rights because the child in same sex family appear to be normal, and also same sex parents are not appear to harm child, according to Homosexuality and Family Relations. If homosexual parents can support their children, same sex couples can be as good parents as heterosexual parents. As such, same sex parents are the same as other people who can support children, such as, they give love to children, pay taxes, go to work. It shows that being homosexual is not a mental disorder. In addition, nowadays there are thousands children have no permanent homes, and they are waiting for adoption. It is shows that same sex parents are one of those who help children to have love and home. Therefore, people should not determine only about sexuality of those who want to adopt children. As Mary Bonauto of Boston-based same sex couples Avocates and defenders said that, â€Å" Sexual orientation is not the issue, ability of parent is issue. †

Definition of Precipitation Reaction

A precipitation reaction is a  type of chemical reaction in which two soluble salts in aqueous solution combine and one of the products is an insoluble salt called a  precipitate. The precipitate may stay in the solution as a suspension, fall out of solution on its own, or can be separated from the liquid using centrifugation, decantation, or filtration. The liquid that remains when a precipitate forms is called the supernate. Whether or not a precipitation reaction will occur when two solutions are mixed may be predicted by consulting a solubility table  or the solubility rules. Alkali metal salts and those containing ammonium cations are soluble. Acetates, perchlorates, and nitrates are soluble. Chlorides, bromides, and iodides are soluble. Most other salts are insoluble, with exceptions (e.g., calcium, strontium, barium sulfides, sulfates, and hydroxides are soluble). Note that not all ionic compounds react to form precipitates. Also, a precipitate may form under certain conditions, but not others. For example, changes in temperature and pH can affect whether or not a precipitation reaction will occur. Generally, increasing temperature of a solution increases the solubility of the ionic compounds, improving the likelihood of precipitate formation. The concentration of the reactants is also an important factor. Precipitation reactions are usually single replacement reactions or double replacement reactions. In a double replacement reaction, both ionic reactants dissociate in water and their ions bonds with the respective cation or anion from the other reactant (switch partners). In order for a double replacement reaction to be a precipitation reaction, one of the resulting products must be insoluble in aqueous solution. In a single replacement reaction, an ionic compound dissociates and either its cation or anion bonds with another ion in solution to form an insoluble product. Uses of Precipitation Reactions Whether or not mixing two solutions produces a precipitate is a useful indicator of the identity of the ions in an unknown solution. Precipitation reactions are also useful when preparing and isolating a compound. Precipitation Reaction Examples The reaction between silver nitrate and potassium chloride is a precipitation reaction because solid silver chloride is formed as a product.AgNO3(aq) KCl(aq) → AgCl(s) KNO3(aq) The reaction may be recognized as a precipitation because two ionic aqueous solutions (aq) react to yield a solid product (s). Its common to write precipitation reactions in terms of the ions in the solution. This is called a complete ionic equation: Ag  (aq)   NO3−(aq)   K  (aq)   Cl−(aq)  Ã¢â€ â€™ AgCl  (s)   K  (aq)   NO3−(aq) Another way to write a precipitation reaction is as a net ionic equation. In the net ionic equation, the ions that dont participate in the precipitation are omitted. These ions are called spectator ions because they seem to sit back and watch the reaction without taking part  in it. In this example, the net ionic equation is: Ag(aq)   Cl−(aq)  Ã¢â€ â€™ AgCl  (s) Properties of Precipitates Precipitates are crystalline ionic solids. Depending on the species involved in the reaction, they may be colorless or colorful. Colored precipitates most often appear if they involve transition metals, including the rare earth elements.

How Can You Effectively Work in a Team - 993 Words

HOW CAN YOU EFFECTIVELY WORK IN A TEAM? What is a team? As noted by Dwyer (2006) â€Å"The terms ‘team’ and ‘group’ are frequently used interchangeably, since on many occasions that they share almost identical characteristics†. Or in other words, a team is composed of two or more individuals who are working together interdependently and cooperatively towards a common purpose or goal. The team is the most important asset of any project; an effective team has a common objective, complementary skills and mutual accountability. The four stages of effectual teams and their growth was first developed and published by Bruce Wayne Tuckman (1965). His theory, â€Å"Tuckman’s Team Development Stages† (Forming,†¦show more content†¦Teams have to devote energy to maintain and build team spirit. The team has to be efficient in all operations and accomplish all goals and objectives as one! The last stage introduced by Tuckman, adjourning, is where the team disso lves itself and restructures after a mission. Disappointments about unattained goals and senses of loss as the group disbands are common, but this should be overcome by concentrating on the positives. Members should congratulate each other and celebrate together as a team. All the stages discussed are approaches towards the success of teams. Teamwork is an influential thing. People who are able to function and work alongside with other members can attain high standards in communities. All these stages build effective teams, mould members, achieve goals and most importantly, escort teams to success! REFERENCES Baz Khindi (n.d). Project failure - what are the reasons for and statistics on it? Retrieved July 24,2012,from http://www.articlesbase.com/training-articles/project-failure-what-are-the-reasons-for-and-statistics-on-it-871395.html Gina Abudi (n.d). 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