Presented by: Mahwish Bashir

Share Bashir

Misbha Topic: Research on Ufone Low Market Department: Marketing NICE UNIVERSITY

Objectives of presentation includes to develop your understanding about:

Management Decision Problem Limitation Of the Study Methodology Risk in Reserve Management
Risk Management practices of RBA Conclusion Recommendations

History Of Ufone
HISTORY OF UFONE: Reserve management is a process that ensures that adequate official public sector foreign assets are readily available and controlled by the authorities for meeting a defined range of objectives for a country.

Cont..
Objectives
Foreign

exchange reserves are available meeting a defined range of objectives. exchange rate and credit controlled in a prudent manner. risks

for are

Market,

Reasonable

earnings are generated over the medium to long term on the funds invested. needs and external debt obligations.

Assist the Govt. in meeting foreign exchange

Cont..
Scope
Management of liabilities Short foreign exchange positions The use of derivative financial instruments.

Transparency and Accountability

Clarity of roles, responsibilities, and objectives of financial agencies

responsible for reserve management

Open process for reserve management market operations Public availability of information on foreign exchange reserves Accountability and assurances of integrity by agencies responsible for

reserve management

Governance
Describes the overall management approach through which senior executives direct and control the entire organization, using a combination of management information and hierarchical management control structures.

Internal Guidelines

Governance

Structure

Risk
Probability

or threat of a damage,injury,loss or negative occurance

caused by external or internal vulnerabilities

Risk framework
A Model of risks in the organization. Risk frameworks typically enumerate the various classes of risk and the degree of Risk that Management expected.

Risk Management Framework

o Identifies and assesses the risks of reserve management

operations
o Allows the risks within acceptable parameters

Risk in Reserve Management EXTERNAL MARKET-BASED RISKS:

Liquidity risk. Credit risk Exchange rate risk OPERATIONAL RISKS Control system failure risks Financial error risk Loss of potential income

Reserve Bank of Australia

Benchmark portfolio
United States Currency allocation (%) Asset allocation (%) Duration (Months) 45 45 30 Europe 45 45 30 Japan 10 10 30

Composition of Benchmarks
United States Europe Japan

Asset Class
Deposits Treasury bills Treasury Notes

% of Total
22 21 57

Asset Class
Deposits Treasury bills Bonds

% of Total
30 15 55

Asset Class
Deposits Treasury bills Bonds

% of Total
22 33 45

Weaknesses in system
Fund managers are allowed to deviate from target that is a barrier to measure and incorporate these risks in limit

RBA focus on VaR and DaR that is more narrow focus on measuring the market risk of portfolio exposures.

These measures does not measure the risk that the issuer of security can default at the maturity

Ineffective backup arrangement in the event of contingency and failure to prevent excessive risk taking.

No allowance of price volatility and correlation in price movements between securities and between portfolios.

Strengths in the system

There is a latitude for managers to invest and deviate from benchmark.

Use of benchmark and separation of duties of back, middle and front offices

The reserve management hierarchy is responsible for defining the objectives and responsibility of implementing the mandate

All the policies are clearly understood by staff and control system, and the investment mandate is documented

Any needed change requires management approval before the change is made

CENTRAL RESERVE BANK OF PERU(BCRP)

Currency composition in terms of maturity and credit risk

Currencies

Jun-302010 82.2 15.7 2.1

Term maturity 0-3 Months 3-12 Months <1year

to Jun-30- Long term 2010 rating 43.1 11.9 45.0 AAA AA+/AA/AAA+

Jun-302010 74.5 17.5 8.0

US$ 82.2
Other currencies Gold

Strengths
The BCRPs reserve management involves a risk neutral and replicable portfolio even when the market is very volatile.Its portfolio is based on the market indicies

The purpose is to maximize the return on investment and latitude also given to the fund managers.Actual and banchmark portfolio is monitored on the daily basis at market prices

The BCRP has managed its liquidity risk by diversifying in different investments.Deposits are held with first class banks that are assigned A-1 and A+ credit rating.

The BCRP manage their interest rate risk by matching the term structure of assets and liabilities.Most of their investments are in AAA securities.

Weaknesses in system

Recommendations for effective risk management in reserves

Decision making authority for reserve management clearly defined, Authority should develop the objectives of reserve management. A strategic long term portfolio that is best trade off between different risk A latitude for the fund managers to deviate from benchmark as provided by RBA and BCRP If SBP dont want to do so then it can transfer the authority to the treasurer to assign extra limit to fund managers if they can provide the solid reason to invest.

Cont..

Cont..
Fund managers should be aware of potential

losses and other consequence of risk exposures so they could be prepared to accept the results.
The eligibility criteria for the selection of trading

counterparties should be clearly defined.

There should be a framework for determining the

maximum credit exposure permitted with each party.

Active risk management is good approach to

mitigate the risk than passive risk management practices.