Financial Risk Management

Content Summary

Study guide: third edition

High levels of debt exist across the world following the Global Financial Crisis. In combination with slow economic growth, this has created a volatile global economic environment. As a result, organisations are vulnerable to financial risk, including funding and liquidity risk, market risk from interest rate, exchange rate or commodity price movements, credit risk and operational risk. The purpose of this subject is to equip you with the necessary skills to assess these financial risks and manage them strategically with the use of financial instruments.

The Financial Risk Management subject extends the governance framework covered in the Ethics and Governance subject, discusses the process of investment evaluation (covered in the Strategic Management Accounting subject) and examines some of the practical elements and complexities of hedge accounting in relation to the International Financial Reporting Standards that were covered in the Financial Reporting subject.

Financial Risk Management is an elective subject offered in the CPA Program.

Exam structure

The Financial Risk Management exam typically comprises entirely of multiple-choice questions.

General objectives

On completion of this subject, you should be able to:

  • understand risk and a risk management framework
  • identify the types of financial risk faced by an organisation
  • apply a practical approach to assessing, monitoring and managing an organisation's financial risk
  • understand the funding, liquidity, interest rate, foreign exchange, commodity price, credit and operational risk that organisations face
  • advise an organisation on the procurement and management of funding and the allocation to competing long-term investments
  • advise an organisation on the types of financial instruments that could be used to best manage an organisation's financial risk
  • demonstrate the practical elements of accounting for derivatives, covering both embedded derivatives and derivatives used for hedging purposes
  • explain responsibilities for financial risk and regulatory requirements, and the control framework to manage both financial and operational risks.

Subject content

The weighting column in the following table provides an indication of the emphasis placed on each module in the exam. The proportion of study time is a guide for you to allocate your study time for each module.

Module Recommended proportion of study time (%) Weighting (%)
1. Introduction to financial risk management 10 10
2. Management of liquidity, debt and equity 10 10
3. Financing and evaluating investments 14 14
4. Derivatives 10 10
5. Interest rate risk management 14 14
6. Foreign exchange and commodity risk management 14 14
7. Accounting for derivatives and hedge relationships 14 14
8. Controlling risks 14 14

Subject outline

For more information, see the subject outline below.