Advanced Credit Risk Analysis and Management ch5

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1、AdvancedCreditRiskAnalysisandManagement.CibyJoseph.©2013CibyJoseph.Published2013byJohnWiley&Sons,Ltd.5ExternalRisksAlmosteveryoneknowswhytheTitanicsank,inthecoldwatersofAtlanticonastarlitnightin1912.ThetragedyoftheTitanic,whichwasimmortalizedinalate1990sHollywoodfilm,wastheresultofi

2、gnoringexternalthreats.Theshipwasclaimedtobethestrongestandmostunsinkablebuilttodate,whichledtocertainunconsciousdecisionsonthepartofthepeopleresponsibleforsteeringtheshiptoignoreexternalthreatsfromseaandweatherfactors.Theinformationonanexternalrisk–icebergs–wastakentoolightly.Theco

3、nfidencereposedinthestrengthoftheship–thebestshipin1912–wasexcessive.Similarly,inbusinessevenstrongenterprisesandcompanieshaveflounderedbecauseofinadequateattentiontoexternalthreats.Thebusinesshistoryofseveralnationstellsusstoriesaboutthemightycompaniesthatdisappearedallofasuddendue

4、tochangesintheexternalenvironment.Forexample,thedownturninUSrealestateduring2007–09wipedoutseveralreputedbusinessinstitutionsintheUSsuchasLehmanBrothers,WachoviaBankandWashingtonMutual.Inthischapterwewillcoverexternalrisks,firstamongthethreemajoroperatingorbusinessrisks.Itreferstoal

5、lthosenon-industryandnon-entityfactorsthatimpacttheoperationalandfinancialaspectsofabusiness.Businessesdonotoperateinavacuum.Manyexternalfactorsdoinfluencetheresults,actionsanddecisionsofbusinesses,althoughdiversebusinessesareimpactedbyvariedexternalfactorsindissimilarways.Whilstago

6、vernmentcontractormayfaceadifficultsituationbecauseofdelayedsettlementofduesbygovernment,arestaurantchainwillnotbeaffectedtothesameextent.Ifabankdecidestoaggressivelyincreaseexposuretoconstructioncontractorstowardsthepeakoftheconstructionboom,itmayresultinserioustroublesastheboomsub

7、sides.Suchsituationscallforcarefulanalysisofthevariousfactors,includingtheeconomicenvironment,beforetakingacreditdecision.Therealworldisfullofpolitical,socialandtechnologicalandotherforces,whichintermixandsometimesflowatcross-currents.Identificationofthemajorexternalrisksandawarenes

8、sastohowmajorextern