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Operational Exposures

Discuss about the Faculty of Business, Environment and Society.

In this report, the reporter has taken two companies one is Sainsbury’s bank and other is retail store Tesco Plc. In this report, foreign currency exposures that each company faced in market are discussed as well as discussed how each company overcome them. Three exposures are discussed one is operational risk exposure, transactional exposure and transactional exposure have discussed. After reviewing these exposures, each company meet the specific requirements and measure the performance evaluation plan to enhance the performance of each company.

In this report, the reporter has selected Sainsbury’s Bank Plc. and Tesco Plc. The reporter has compared selecting operations. There are three types of foreign currency exposure that a company faces while making transactions.

Sainsbury bank was facing internal process risk due to processes, people, and system from external events. Operational and regulatory commit is to ensure alignment with bank in order to measure the requirement for operational risk manage that can help to link the combination of risk in order to identify bank evaluations, monitoring plans, and operational activities for progress of appetite through number of core processes (Gupta and Kazemi, n.d.). Strategic risk maintained the set of detail for current evaluation plan that assess the key strategic risks in the Bank along with assessment report to ORRC. Government and ORRC ensure the regulations and find the effectiveness of an operational plan that has outstanding risk to monitor the operations. The major potential sources for operational risk is important for managing internal and external frauds that can be managed through evaluating failure of system process as well as from the inadequate structural changes. The risk mitigation is also an example for risk exposure (Anon, 2016).

Tesco is also facing operations risk that is due to potential errors, harmful product sales, wastage of material and loss of other items that inadequately meet or define the process, system failure, and improper planning that influence reputational plans. The CRO has direct report to measure the business activities, ensure the reasonable plan, development means for communication, and operational risk market plan for developing framework in order to understand tools for developing productive outcomes. It would evaluate the business responsibilities, enhance the performance evaluation plan, and consider productive tools for potential risk management activities that provide positive risk measures, culture, and other external and internal business activities. Anti-money laundering scheme helps to evaluate the frauds and manage risk exposure (Financial Statement, 2016).

Transactional risk of Sainsbury bank is based on los of interest rate return from the provision of financial products and evaluate bank’s retail customer based on wholesale exposure consequently evaluate possible differences in the timing of maturities, rate of liabilities, assets, and other position items that are based on indices (Agoston and Rudolph, 2010). It is possible make differences in management of interest risk and evaluate the banking responsibility. The banks’ market risk policy is reviewed that approved by ALCO and board risk committee. The bank does not take any risk for speculative purpose and sets the framework on basis of standards while evaluation of banking activities on basis of maturity. Interest rate exposure is managed through hedging of fixed rate of return and elaborates the retail lending. It influence on adverse movements where the interest rate is molded across the range of transactions and monitor the parameters for behavioural assumptions (Anon, 2016)

Transactional Exposure

Tesco faces the same risk that influences income statement of each company where liabilities, assets, and costs are influences due to variety of charges (Sedlmaier, 2005). The company has not impact on trading activities and planning to meet the requirement of business operations. Interest rate risk on each transaction of Tesco would be evaluated in retail store (Vuckovic, 2005). Company’s profile in ATM income and funding activities increase the reprising features of nontraditional assets and liabilities. However, it is evaluated that interest rate risk of banking book will increase due to increase the foreign trading. Controlling risk is a major tool to report for market plan and improve liquidity to enhance performance evaluation plan (Financial Statement, 2016).

Sainsbury bank is facing foreign exchange risk that it would suffer loss due to sterling falls and transaction in different currencies. Fluctuation in currencies’ rate influences the transaction of banks. Each transaction may provide benefits or loss of company and manage the risk on floating activities in order to increase available sale investment securities (Meyendorff and Snyder, 1997). The forecasting transaction in foreign currencies can be hedged through different transaction in order to sustain the company’s situation (Anon, 2016)

Tesco invests in non GBP bonds to increase funds. Due to foreign currency’s fluctuation, retailing activities influenced because foreigners will pay in foreign exchange and when return will made in bank the fluctuating rate reduce the actual price of the product. The investment portfolio of company will help to investigate the portfolio and insure the performance of business operations in order to enhance productivity and improvement in policies. Interest rate will be affected due to change in rate of return and evaluate the proportion of the bonds to fix the rate in nature of credit quality risk with range of assets (Financial Statement, 2016).

In this section of report, recovering methods of each company will be discussed to overcome the sale volume and improve the productivity plan.

Sainsbury bank has potential sources to overcome operational exposures due to foreign trading. Internal auditing team helps to evaluate the operational risk causes and develop program and software to maintain each transaction record that can reduce chances of frauds. Hire honest team members to enhance productivity of company (Westland, 2002). Cash resources can meet the liquidity risk of company that bank cannot maintain or generate the sufficient resources to meet the payment. Individual Liquidity Adequacy Assessment allows demonstrating the understanding and running the appropriate control in place to mitigate the establishment and meet the risk exposure for measuring performance plan. The minimum level of liquidity risk is to limit the information form number of sources and assesses the periodic exposure. The stress of operational exposure reduces by specific requirement of banking activities with depositors and creditors (Financial Statement, 2016).

Tesco can reduce the operational risk of business by improving cultural activities, independencies in operational planning, and monitoring the reports on weekly basis. Operational risk has also specific responsibility to overcome frauds and manage risk with biggest operational activities that can transform the program under which company set up banking activities and insure the proper infrastructure for process evaluation activities. Company mitigate the loan saving and business insurance from RBS and remain the transformational program to build a proper system. . It would evaluate the business responsibilities, enhance the performance evaluation plan, and consider productive tools for potential risk management activities that provide positive risk measures, culture, and other external and internal business activities.  

To avoid transactional risk, bank develops formal program to manage risk and establish a centerlized plan to maintain control over networking operations. This can help to avoid such types of risk (BOYD, 1979). The nature of risk management reporting system is usually integrated with credit functions but it would usually incline credit risk management function with larger transactions. Bank actually takes external information about political and other environment in order to deal with factors (Bellini, 2013). Bank focuses on developing proper communication that can help to improve experiences in times of crisis. Bank assign formal rating that defines investment risk and evaluate the local currency transaction that are most important (Zareen, Razzaq and Mujtaba, 2014).

Tesco has ability to take primary knowledge about input material from local and international market and regulate visiting plan that can help to reduce overemphasize on external information. In order to build internal rating application, company would help to monitor functions and trends to diverging the interest between operations as well as improve business risk. Company will take raw material from local market that can reduce transparent cost and comprises of business unit practices. It is an important utilization from variety of sources and identify central guidelines that can provide information to overcome risk (Bergendahl, 1981).

). Bank and Tesco both are focusing on SWAP of currency to overcome the translation risk. Swap can help them to reduce risk and improve productive plan in order to enhance productivity.

Foreign exchange risk could be reduced due to evaluating cash flows and increase the sale investment securities. The foreign exchange forecasted transaction in foreign currencies will hedge with currency swap that will reduce the company risk and improve the flow of risk in case of bank and retail store (Anon, 2016

Conclusion

Thus, it is concluded that risks are important to improve the business operations. Internal auditing team helps to evaluate the operational risk causes and develop program and software to maintain each transaction record that can reduce chances of frauds. Hire honest team members to enhance productivity of company. Cash resources can meet the liquidity risk of company that bank cannot maintain or generate the sufficient resources to meet the payment. Transactional risk arises from provision of specific financial product where the bank evaluate the retail customers on basis of wholesale and consequently possible evaluation plan with having different risk for timing of maturities.

References

  1. Financial Statement. (2016). Tesco Plc. [online] Available at: https://www.tescoplc.com/media/1618/pillar_3_market_disclosure_201205.pdf [Accessed 20 Sep. 2016].
  2. Anon, (2016). Sainsbury Bank. [online] Available at: https://www.j-sainsbury.co.uk/media/649396/sainsburys_bank_pillar_3_0106.pdf [Accessed 20 Sep. 2016].
  3. Gupta, R. and Kazemi, H. (n.d.). Factor Exposures and Hedge Fund Operational Risk: The Case of Amaranth. SSRN Electronic Journal.
  4. Bergendahl, G. (1981). Foreign exchange exposure management: A portfolio approach. European Journal of Operational Research, 8(1), pp.91-92.
  5. Bellini, T. (2013). Integrated bank risk modeling: A bottom-up statistical framework. European Journal of Operational Research, 230(2), pp.385-398.
  6. Agoston, A. and Rudolph, K. (2010). Transactional Associations Between Youths’ Responses to Peer Stress and Depression: The Moderating Roles of Sex and Stress Exposure. Journal of Abnormal Child Psychology, 39(2), pp.159-171.
  7. Sedlmaier, A. (2005). From Department Store to Shopping Mall: New Research in the Transnational History of Large-scale Retail. Jahrbuch für Wirtschaftsgeschichte / Economic History Yearbook, 46(2).
  8. Meyendorff, A. and Snyder, E. (1997). Transactional Structures of Bank Privatizations in Central Europe and Russia. Journal of Comparative Economics, 25(1), pp.5-30.
  9. Vuckovic, V. (2005). The microstructure of foreign exchange rate and foreign exchange rate formation. Ekonomski anali, 50(164), pp.63-79.
  10. Zareen, M., Razzaq, K. and Mujtaba, B. (2014). Impact of Transactional, Transformational and Laissez-Faire Leadership Styles on Motivation: A Quantitative Study of Banking Employees in Pakistan. Public Organiz Rev, 15(4), pp.531-549.
  11. BOYD, J. (1979). Transaction Risk and Bidiing Behaviour. Economic Inquiry, 17(1), pp.75-88.
  12. Westland, J. (2002). Transaction risk in electronic commerce. Decision Support Systems, 33(1), pp.87-103.
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My Assignment Help. (2017). Foreign Currency Exposures Faced By Sainsbury's Bank And Tesco Plc. Retrieved from https://myassignmenthelp.com/free-samples/faculty-of-business-environment-and-society.

"Foreign Currency Exposures Faced By Sainsbury's Bank And Tesco Plc." My Assignment Help, 2017, https://myassignmenthelp.com/free-samples/faculty-of-business-environment-and-society.

My Assignment Help (2017) Foreign Currency Exposures Faced By Sainsbury's Bank And Tesco Plc [Online]. Available from: https://myassignmenthelp.com/free-samples/faculty-of-business-environment-and-society
[Accessed 29 May 2024].

My Assignment Help. 'Foreign Currency Exposures Faced By Sainsbury's Bank And Tesco Plc' (My Assignment Help, 2017) <https://myassignmenthelp.com/free-samples/faculty-of-business-environment-and-society> accessed 29 May 2024.

My Assignment Help. Foreign Currency Exposures Faced By Sainsbury's Bank And Tesco Plc [Internet]. My Assignment Help. 2017 [cited 29 May 2024]. Available from: https://myassignmenthelp.com/free-samples/faculty-of-business-environment-and-society.

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