Trading Risks in Banking and Financial Institutions (Essay Sample)

Trading Risks in Banking and Financial Institutions center

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Executive Summary
The most critical factors for success in banking and finance are good reputation, superior financial and debt management, economies of scale, cross-selling and non-traditional revenue sources. However, trade risks act as barriers to achieving the goals of financial institutions by creating depressions, these trade risks include; exchange rates, interest rates, credit risks, liquidity risks, and marginal risks. Management science models in banks and financial institutions have to utilize various management techniques to offset these trading risks in the banking industry. Management decisions should follow data-driven qualitative techniques that recommend a decision-making process with good behaviors for optimal portfolios, finances, trade, and banking relationships. Models used in banking are formulated such that they revolve around the profitability of the institution without incurring major trading risks.
Trading Risks in Banking and Financial Institutions
Introduction
Risk management is widely used in banking and financial institutions that focus on success within the industry with minimal losses and risks. However, trade risks act as barriers to achieving the goals of financial institutions (Oudat, and Ali 2021) by creating depressions, these trade risks include; exchange rates, interest rates, credit risks, liquidity risks, and marginal risks. Developing interests in the banking industry that include  Portfolio Optimization, financial, trading, banking relationships have emerged as some of the factors that enhance the success and good reputation in the banking industry (Candraningrat et al., 2021). The application of management science techniques in decision making is vital for optimal decisions (Silahtaroğlu et al., 2021), research in similar fields has proved that management science techniques in banking are potential pillars for success and unique competitive advantage. Ahamed (2021) affirms that the use of management science has helped major banks attain success factors while reducing trade risks such as exchange rates, interest rates, credit risks, liquidity risks, and marginal risks in the industry. This paper proposes to present real-world examples of how management science can be utilized by banks to reduce the impacts of exchange rates, interest rates, credit risks, liquidity risks, and marginal risks and improve on the success factors in the banking industry.
Description of The Industry
The banking industry is composed of banks and institutions that provide a vast array of financial activities and services to clients and similar businesses (Silahtaroğlu et al., 2021). The services offered include industrial and consumer loans, deposit taking, investment advice and services, mortgage lending as well as collaterals. However, with the increasing innovations and technological advancement in banks, risks such as exchange rates, interest rates, credit risks, liquidity risks, and marginal risks have rapidly increased and become more diverse in terms of services provided leading to the wide application of technological models that aim to maintain higher competitive advantage.
Research Interests
The banking industry is coupled by various trade risks, for example, exchange rates, interest rates, credit risks, liquidity risks, and marginal risks, these brainstorm businesses in an attempt to increase profits in the competitive world. According to Oudat, and Ali (2021), Portfolio Optimization, financial, trading, and banking relationships are the major factors that determine the levels of success for banking and financial institutions. To optimize management decisions, banking and financial institutions should practice good transactional processes that enhance productivity and minimize trade risks (Ahamed, 2021). Having done various studies on Portfolio Optimization, financial, trading, and banking relationships, there is a wide level of expertise that depicts the success of research in these areas. Therefore, through studies concerning these interests, I discovered that there exists a gap that has not addressed the behavioral impacts of management science techniques in the banking industry and this research will focus on what management science tools should be used to prevent the impacts of trading risks faced by banking institutions.
Critical Success Factors in Banking and Finance
Success factors in banks and financial institutions can be defined as a variety of techniques that are ranked hierarchically in their order of technicality and profit maximization (Mori, 2021). These factors include are good reputation, superior financial and debt management, economies of scale, cross-selling and non-traditional revenue sources. Superior debt and financial management is a critical success factor that all banks should maintain to a grueling and conservative approach in trade risk management (Silahtaroğlu et al., 2021). Banking and financial institutions must maintain a good reputation in managing interest rates, foreign exchange, and operational risks. The bank's ability to raise revenues from traditional and additional sources is critical in the industry since lenders are prone to lower growth. The increasing investment in the banking and financial institutions has pushed more service providers to additional non-interest incomes that must be very aggressive for the company to continue existing in the industry, otherwise, they may be forced to close down due to competitive advantage risks.
Easy access for financial services has become easy for clients and more importantly within banks, they are maintaining easy access through methods that include online and mobile applications. Technology has played a big role in operational developments in banking and financial institutions (Silahtaroğlu et al., 2021). Direct relationships between management science and the critical success factors aforementioned are very effective for marinating a good reputation in the industry. A good reputation is essential within the banking industry, attracting new client investments relies heavily on how strong the bank is in retaining existing clients through trade risk reduction.
Utilization of Management Applications to Reduce Trade Risks in Banking
Recent surveys in the banking industry indicate that financial management is an area that focuses around 23% of time and resources to improve the effects trade risks (IBISWorld, 2014). Businesses in the banking industry must contain client relationships, increase regulatory oversight and rapidly change the market if they want to be successful in eliminating trade risks. Demonstration of the growing importance of decision optimization that leads to portfolio optimization is referenced once by the critical success factors. Fundamental tools applied in portfolio optimization include decision trees and simulations (Silahtaroğlu et al., 2021), models are also important and they can be modified to optimize the trade decision process of managing trade, finances, and banking relationships within the industry. This research focuses on management science that can be applied to reduce the impacts of exchange rates, interest rates, credit risks, liquidity risks, and marginal risks while increasing portfolios under uncertainty. Operational functions and techniques incorporate reserve requirements in management science for achieving liquidity and optimal portfolios (IBISWorld, 2014). Maturity gaps and duration analysis have been applied in management interest rate risks and trade asset-liability management frequently by the majority of banks to ensure solvency and liquidity of the business.
In today’s technical and highly regulated banking industry, businesses lack effective management science that balances their profits and trade risks (Sahamkhadam, 2021). Exchange rates, interest rates, credit risks, liquidity risks, and marginal risks require banks to devise effective planning through portfolio optimization management science that aims to increase the capital base for the business. The bank’s net interest rate is the main source of income (Al Janabi, 2021) and therefore, businesses should carefully deliberate the most appropriate technique to use to increase portfolios while being able to reflect specific trade risks’ patterns and banking relationships that systematically seek to protect against trade risks.
Aims and Objectives of This Study.
This study aims to explore the management science applications that can be applied by banking and financial institutions to reduce the impacts of exchange rates, interest rates, credit risks, liquidity risks, and marginal risks in the banking industry. During the recent banking and financial crisis in the United States, businesses experienced extreme delicacy rates in their lending portfolios that impacted potential long-term ramifications of their finances to the bottom level. Companies like Well Fargo decided to proactively act and develop a qualitative tool that could help identify and remediate risks i