Management and Compensation Committees †MyAssignmenthelp.com

Question: Discuss about the Management and Compensation Committees. Answer: Introduction In the past years there have been several innovations within the financial sector, also with the globalization of the industries have changed to a great extent. As risks are unavoidable in business, the term generally refers to the specific uncertainty which tends to surround the upcoming outcomes and the events. It is generally the impact of a previous event that has the potential of influencing the objectives of the organization. When the risks are recognized within the organization, it needs to apply the risk management to the issues that tend to be predetermined as the outcome of the adverse situations (Stulz 2016). Risk management refers to the safety management principles that are consequences based; therefore the organizations are required to design a risk and safety management framework. This is a tool that is a fundamental constituent of a well designed decision making and management at each level of the organization. Considering the financial sector, the continuous developm ent in the global financial market, the banks are faced with diverse situation. On one hand the opportunities have expanded along with the markets, however at the same time the risks in the business have expanded (McGregor and Smit 2017). The banks are more exposed to the risks in the recent time. This study will trigger the risk management and the corporate governance audit that may have two more outcomes such as the identification of the value of the organization, and at the other hand I may also indicate to the development of the value system. This study will discuss this in respect of World Bank, a global financial institution. Banks are more subjected to various risks as they have a wide range of activities. Generally the risks faced by the banks may be divided into four categories, operational, financial, event and business risks. These risks can also be divided into more categories. The financial risks may fall into two more categories, pure risks and the solvency risks. The pure risks comprises of the credit and liquidity where the solvency risks are the loss of the bank if the organization is not managed properly. There can also be the speculative risks that are determined mostly on the financial arbitrage and may have two kinds of possibilities as it may turn out in a positive result if the arbitrage is right, however the bank might face a loss if it is not right. The speculative risks also include the currency, interest rate, market or the position price risks (McNeil, Frey and Embrechts 2015). The financial risks can also be complicated which has the possibility of increasing the overall risks of th e bank. For instance, if a bank is engaged in dealing in a foreign country it is generally exposed to the risks related to currency; however it is also possible that the bank may be also exposed to the interest and liquidity risks if it carries the open positions. There can also be the operational risks that are generally related to the overall functioning and organizational system of the internal procedure which includes the risks related to the digital technologies, related to the procedures and policies of the bank and the measurement of the fraud and mismanagement of the bank (Lam 2014). There can also be the business risks which are mostly associated with the business environment of the bank involving the policy concern and the macroeconomic factors, regulatory and legal factors along with the infrastructure of the financial sector. The risks mostly include all the exogenous risks that may jeopardize the operations of the bank and has the possibility of undermining the financia l condition of the bank. Risk based Analysis The World Bank is the global financial institution that generally provides the countries loan for various capital programs. The World Bank is generally a part of the World Bank group which is comprised of the International Development Association (IDA) and the International Bank for Reconstruction and Development (IBRD) and it is also a part of the United Nations (World Bank Group. 2017). The performance of the supervisors of the bank evolves continuously along with the appraisal process of the financial analysts. This change is essential for meeting the challenges of the new developments and innovations. It is also important to note that the accommodation of the bigger procedure of the convergence of the global practices and standards are always discussed by the supervisory board of the World Bank. However the conventional analysis of the bank is done on the basis of the quantitative tools that are to assess the condition of the bank and the financial ratios (Moretti and Pestre 2015 ). The risk based analysis of the World Bank includes the significant qualitative factors and the makes the placement of the financial ratios in the bigger framework of the risk management and the risk assessment that is also changes with the relevant risks (Eling and Marek 2014). This analysis also involves the underline of the several institutional aspects such as the style and quality of the corporate governance and management, consistency, completeness and the adequacy of the policies of the bank along with the completeness and effectiveness of the internal control of the World Bank and the accurateness of the information system of the bank. For the risk management analysis, the scectoral analysis and the analysis of both the international and domestic analysis is significant. The sectoral analysis generally provides the established norms for each sector within the banking industry. Also, the World Bank tend to participate in both the global and domestic financial systems all around the world and it plays a major role in the national economic systems as well. The banking statistics also provide a thorough insight to the economic systems of the countries. Credit Risk Management Credit risk refers to the opportunity that a issuer or a debtor of World Bank, whether a company, an individual or a country, will disagree to repay according to the terms and conditions of the credit agreement. The credit risk can affect the cash flow of the bank directly and has a possibility of affecting the liquidity of the bank. Therefore, most of the times scholars have indicated that the credit risks are the primary reasons for the bank failures. Therefore World Bank has the credit risk management policies that are outlined according to the allocation and scope of the credit facilities of the bank (World Bank Group. 2017). Also the credit portfolio is managed in a way that financing assets and investment policies are supervised and appraised. For reducing or limiting the credit risks, World Bank puts close attention to few issues such as related to the party financing, exposure to the single clients and exposure to the economic or geographic areas. Higher exposure and the conc entration limits generally refer to more allowed exposure to the single customers, group of customers or a certain sector to the financial activities (Eling and Marek 2014). In addition to that, related to the related party financing generally involves the significant stakeholders of the bank such as affiliated companies, subsidiaries, directors and others. These parties are generally placed in such a apposition that it exerts influence on the policies and decision making of the bank. In analyzing the credit risks, World Bank mostly reviews the loan portfolio structure which includes distribution of loan portfolios, loans with major governments and the other guarantees along with the risk classification of the loans and the detailed analysis of the nonperforming loans (World Bank Group. 2017). This figure refers to the profile of the borrowers of the bank that generally emphasizes the target client segment that may pose a risk to the bank. Liquidity Risk Management The liquidity management is essential for the bank for compensating the unexpected and expected fluctuations in the balance sheet and for providing further funds for the world development. The liquidity risk management is usually a major banking function and it is an essential part of the asset liability management procedure. It has been identified that World Bank is specifically vulnerable to this particular problem on the level of being institution specific from a methodical view point. Therefore World Bank has adopted liquidity management policies which include risk management or the decision making constitution with the funding and liquidity management, a set of limitations to the exposure to the liquidity risks and the methods that involves the liquidity planning under crisis situation and other alternative scenarios (World Bank Group. 2017). Market risk refers to the risk that the bank may experience losses due to unfavorable movements in the market prices which may result in the changes in prices. In addition to that the market risk may also come from the foreign exchange. Therefore market risks may come into practice from the instability of the position that the bank has taken within the primary economic markets such as equities, commodities, currencies and interest sensitive debt securities. Therefore any kind of instability within these market areas may have the possibility of exposing World Bank to the fluctuations in the value or the price of the financial instruments (World Bank Group. 2017). Moreover, World Bank has the market risk management policies that commonly state the objectives of the bank and the relevant policy guidelines that has been established in order to protect the capital of the bank from any negative impact of the unstable movements in the market prices. Currency Risk Management The currency risks generally results when there is a significant change in the exchange rates. It originates due to the mismatch between the value of liabilities and assets that are denominated in various countries. There are other risks that can accompany the currency risks are the liquidity risks, settlement risks, counterparty risks and the interest rate risks. While assessing the currency risks, World Bank have distinguished clearly between the risks that are the outcomes of the conventional banking operations, risks initiating from the political decisions and the risks from the trading operations (World Bank Group. 2017). However, the currency risks are generally handled by the established position limits. In addition to that, the major currency risk management is the net effectual open position of all the currencies put together as the absolute values and therefore expressed as a certain percentage of the qualifying capital. Also the net effective open position is not expected to surpass the determined value. It should also be noted that the currency risk management outlines a section of the asset liability process. The asset liability management is related with the interest rate risk management. The asset liability management committee of World Bank triggers the protection of capital and income from interest rate risks. The primary aim of the interest rate risk management is the maintenance of the interest rate risks within the authorized levels. The World Bank attempts to make sure that the restructuring of the balance sheet that tends to generate the maximum benefits from the interest rate movement (World Bank Group. 2017). This can also be influenced by the liquidity issue, especially when the bank does not access the derivatives of the interest rates. The World Bank determines the risk and its impact by recognizing and quantifying the exposures through utilizing the valuation model and the simulation along with the gap analysis of re-pricing. Operational Risk Management The operational risk management is one of the most significant activities of the bank where it the assessment of the risks need to recognize the business activities which needs to aligned with the operational, strategic and the compliance objectives (Claessens and Yurtoglu 2013). This risk management needs a clear reporting along with the risk and the performance indicators that are linked with the control of the risks from the business performances. The corporate governance refers to the method of governing the business. It may also be defined by the relationship between the board of World Bank, shareholders, management and the other stakeholders of the organization. The corporate governance principles include the settlement of the corporate objectives of the bank that aligns with the corporate behaviors and activities that are regulated for operating the bank in a safe way (Claessens and Yurtoglu 2013). The corporate governance team of World Bank within the economical market generally provides the policies on the corporate governance that are related to the capital markets and financial sectors. The FMI or the Financial Market Integrity group is placed within the global practice of the World Bank group. The corporate governance within the FMI put the focus on the improvement of the CG in the rising markets. This is done by providing the thought leadership, technical assistance and the support to the advisory programs of the World Bank group. Having good corporate governance in the emerging countries is essential for helping the organizations and the other financial institutions in improving their performances and lowering the cost of the capital and economic growth with financial stability. In performing this, the CG group of World Bank mostly focuses of four different areas that are, improving the banking institution governance specifically for the state owned banks, developing the regulatory and legal function of the unlisted and listed organizations, reinforcing the capability of the supervisors and the regulators and improving the financial institutions and the micro fin ance institutions (World Bank Group. 2017). The CG group works directly within each f these areas and the customer countries for accomplishing the future paths of reforming and supporting the implementation while providing the training, advisory service and the knowledge sharing. Within the financial sector the corporate governance is necessary as the financial organizations are usually charged for upholding the trust of people and defending the depositors (Calomiris and Carlson 2016). Therefore these institutions need more organized corporate governance for fulfilling their fiduciary responsibilities. The Cooperate governance group of World Bank therefore has developed various tools that can identify the weakness and the strengths of the existing framework. Conclusion The authorization of World Bank is the financing of the development over a medium run. As the bank is one of the enormous sources of the financial resources for further development, it is associated with several agencies. The World Bank model generally puts the focus on the real variables along with the emphasis on the relation between the external resources, savings, growth and investment. The primary target of the World Bank is developing the real GDP along with the foreign reserves. The fundamental policy instruments are generally the fiscal policy and the non trade inflows of the foreign resources. Therefore it has been identified that the framework of World Bank is a two gap model. The above figure shows that the requirements for the investment are generally given by the relation between the ICOR and the desired rate of the financial development. However there are also few internal possibilities of fulfilling the gaps, such as adjusting the desired developmental rate as that tends to slow the economic growth down. Also there can be measures that can be helpful in increasing the marginal competence of the capital. However this model presumes K or the stock capital as a constant but scholars also view that it may focus on the outline of the capital accumulation, consumption and investment along with the efficiency measurements. Reference List and Bibliography Acharya, V. V., Gottschalg, O. F., Hahn, M., and Kehoe, C. 2013. 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