Risk Control

  

Categories: Managed Funds

If we see sweetbread on a restaurant menu and order it without doing any research, thinking we just ordered some kind of yummy dessert item, we’re going to be in for a big shock when someone plops a plate of lamb pancreas down in front of us.

“Sweetbread” is one of those words that just doesn’t mean what it sounds like it should mean. But that’s not the case with the term “risk control,” which is exactly what it sounds like. “Risk control” is the method an organization uses to control its risk. Mind = blown, right?

Now...what risk control specifically looks like is going to vary from one company to the next, so let’s just talk about what they all tend to have in common. Companies usually try to figure out where they’re vulnerable by conducting risk assessments. Once they find a potential weakness—maybe their data protection software is out of date, or maybe they have a subsidiary in the middle of a potentially bankrupting lawsuit—they can devise strategies to address those risks. For the most part, a company’s risk control measures are going to do three things: 1) analyze the likelihood and potential impact of the risk, 2) put processes in place to either prevent the risk or reduce its effects, and 3) conduct in-depth analyses of risks that do materialize, so they can figure out how and why they happened.

What might those processes look like? They might look like more stringent accounting principles, or increased safety training requirements. They might look like a diversification of resources and assets, so that one risk event doesn’t take the company under. They might involve hiring an in-house legal staff, copyrighting and patenting proprietary information, or setting up backup servers for our backup servers. If we own a restaurant, they might even involve putting a disclaimer on our menu so we don’t get sued the next time someone orders sweetbread expecting chocolate cake.

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Finance: What is a Risk Profile?0 Views

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Finance allah shmoop what is a risk profile Hello You

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know that song Hello By adele You know you've heard

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it like eight thousand times Hello How are you Yeah

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So think of the you today wondering whether you should

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loan money to the you of ten years ago Hello

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with you How much And on what terms What details

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would you have wanted to glean before you wrote the

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check for your hard earned money to risk being fully

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lost on the flaky you of ten years ago Okay

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so dialing it back here the key vocab words you

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must know the key components to a bond The principle

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it's the base amount of a bond loan that dollar

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amount that is loaned before interest and fees or commissions

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or taxes or anything else in the world of corporate

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bonds and most government bonds The base amount is usually

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in multiples of a thousand bucks And for larger accounts

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it's five thousand bucks And these air called bond denominations

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of thousand dollars Five thousand dollars Ten thousand a hundred

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thousand All denominations you know like a denomination for best

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bond in a short film category goes to the t

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bill the principal in a mortgage style bond is the

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amount the bank is loaning Use you khun by your

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three bedroom picket fence quarter acre house with you know

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basement dungeon dream home fifty shades of home If you

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put one hundred grand down and borrowed four hundred thousand

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dollars is your mortgage from the bank to pay five

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hundred thousand dollars for the dream home of your life

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Your loan principal is yes four hundred thousand dollars Well

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in most bond scenarios the principle can be and is

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bought in sold just like any other security So in

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the case of the you loaning money teo you let's

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say the older you realize is that you take too

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much risk in life You followed your dreams Try to

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become a rock star rather than listening to your nightmares

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Age forty homeless and broke That's how you ended up

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trying to say so The older you cells that bond

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to someone else who doesn't mind your maniacal focus on

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head banging metal band practice or at least unlike the

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older you doesn't view that as a fundamental risk in

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them Paying back the money they borrowed Well bonjour typically

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issued in these thousand dollars base units or their par

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value or face value but they're quoted in units of

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one hundred go figure that is a bond Units selling

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for one thousand twenty five dollars would be quoted as

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one oh two and a half and when you buy

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the bond you pay one hundred three cents on the

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dollar The cellar of a bond gets one oh two

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and a half cents on the dollar in the fifty

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cents goes to the agent there Got it And i

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get really technical Bonds are usually quoted as a spread

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like this like a play bond issue Here's mr november

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That is one oh two and a half by one

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of three which means that if you're the buyer of

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the bond you pay one hundred three cents on the

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dollar And if you're the seller of the bond you

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get one hundred two and a half cents on the

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dollar That's spread which pays the person making the market

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in the bonds or the broker is one Oh three

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Oh minus one o two Five equals yet five bucks

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so when you do buy a bond you'll buy it

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in one of two ways Well in the olden days

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there were a lot of bearer bonds meaning the bearer

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or the person who had the bond in their possession

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like in their wallet owned it like a bill like

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a paper bill Basically back then you could carry around

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bonds just like they were cash and there was no

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trail in the same way There's really no trail on

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a twenty dollar bill you just downloaded from aversa teller

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a tm nonunion robot But because barry bonds are really

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not the best thing to be carrying around folded in

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your wallet the trend quickly became to issue new bonds

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as registered mainly so that they could be held elektronik

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lee and save the murder of millions of trees and

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or sheep Today most bonds don't even carry a p

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paper attributes Rather the buyer gets an email more or

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less with a bond registration number and those bonds are

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usually held inside of the buyers mutual fund or hedge

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fund Or if it's a consumer buying the bond and

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number just shows up in their fidelity Schwab betrayed or

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other online brokerage account So today bonds don't get a

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certificate there issued in book entry form Well the transfer

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agents just keep elektronik records of the bonds and their

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little scriven er's ledgers The names and addresses and data

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of the buyer and seller are copiously stored but there's

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no subsequent paper paperwork that goes along with it And

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all of this is really cool to now be elektronik

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But back in the day bonds were actually printed and

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some of the artwork was actually pretty cool Note that

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it's par value is ten thousand bucks and it has

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really pretty borders Ok next big element of a bond

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is the nominal rate nominal It means in name So

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on the face of the bond certificate there will be

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a named interest rate Take a look at this bond

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right here jonathan do Well here's the nominal or face

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amount and it says four percent So this piece paper

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backed by the company solar city now owned by tesla's

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pays four percent interest Let's pretend the bonds a thousand

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dollars unit well That means the registered owner of this

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bond is due to be paid twenty bucks twice a

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year or forty dollars a year as interest payment on

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that thousand dollars they're renting So the quick summary you

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buy a bond for twenty five thousand dollars that pays

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eight percent a year and see how we're changing this

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up on you to make life difficult The principal's twenty

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five grand The interest payment is two grand a year

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or a thousand dollars every six months because that's how

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bond's role They pay interest twice a year The nominal

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rate of the bond maybe eight percent But if you

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had to pay a premium of say thirty grand instead

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of twenty five grand for that quote eight percent paper

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unquote Well then you won't actually be getting an eight

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percent return on the thirty grand you invested You'll still

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get the two grand a year which is to over

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thirty or about a six point seven percent return If

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you really want to feel connected with dead bad grandpa

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well you can try to find barry bonds which are

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like hold ten thousand dollar bills But you'll have a

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whole lot more luck finding a wide selection of funds

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in the registered isle of the bond grocery storage Schwab's

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good stuff Get the sauce

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