Skip to 0 minutes and 13 seconds Welcome to this course on Risk Management in the Global Economy. In the course, we’ll look at some of the key ideas in finance and in risk management, and we’ll discuss why they are so important in our global and interconnected world. We’ll also explain why some ideas from risk management can be very helpful in everyday life. In fact, any time that we can’t be certain of the outcomes of the decisions that we make, we are dealing with situations that involve risk. Our course will look at some of the main features of financial markets and in particular at how these markets can help us manage risks.
Skip to 0 minutes and 51 seconds We’ll study who are the main participants in financial markets, what are the main types of instruments used by investors, and how one can choose the financial instruments which are the most appropriate for their needs. Now, there are, of course, many different ways to look at financial markets. But the emphasis in our discussions will mostly be on how investors can deal with risk when making their financial decisions. How is it possible to reduce the risk of a financial position? And we’ll discuss examples from the world of finance, not just in developed countries, but we’ll also look at financial markets in developing or in emerging economies around the world.
Skip to 1 minute and 31 seconds Now, we know that all firms face risks, although the specific types of risks that they face will differ. As a result, managers require clear strategies for dealing with risk and also need appropriate techniques for implementing these strategies. You may be tempted to simply think that risk is undesirable and that we should always choose appropriate strategies to minimise risk. This is, however, not the assumption that underpins risk management principles. And the reason for this is that, in general, low levels of risk may also imply low levels of expected profits - that is, low levels of expected returns.
Skip to 2 minutes and 11 seconds Instead, what we see is that firms choose some level of risk that gives them a desirable combination of risk and return - a desirable risk-return ratio. Managers and investors need to be able to calculate risk to value it and to change the combination of risk and expected return by buying and selling assets and liabilities. Some managers will choose a high-risk strategy, in the belief that high expected profits can be associated with high risk. Others will choose more conservative strategies which entail lower risk but also lower expected returns. This course does not assume any prior knowledge of finance, so you should be able to follow even if you have never studied finance before.
Skip to 2 minutes and 58 seconds But if you do have some knowledge of finance, you’ll still be able to gain additional insights from the examples and from the applications, especially when it comes to looking at financial markets around the world. As you progress through the course, you can use the Comments to ask any questions or to share your understanding and experience with your fellow learners. And, of course, we’ll be on hand to join the discussion with you. I very much hope that you’ll take an active role in the course. Let’s start with examining our first key question - What is risk?
Week 1: Introduction
Why is risk management important in our global and interconnected world? How do investors deal with risk when making their financial decisions? And how can ideas from risk management be helpful in everyday life?
In this introductory video, Lead Educator Prof Pasquale Scaramozzino gives an outline of this short course, posing some interesting questions to help us examine some of the main features of financial markets, and in particular how these markets can help us manage risks. He also explains the broad elements we’ll study in this course: the main participants in financial markets, the main types of instruments used by investors, and how they choose the most appropriate financial instruments for their needs.