1 CASE STUDY ON DEUTSCHE BANK MARKET RISK MANAGEMENT SUBMITTED BY SNEHA B. SHAH SUBMITTED TO MS. MUDRA MISTRY 1

2 INDEX About case study About case study Company History Company History Services provide by the organization Services provide by the organization Problems Problems Approach Approach Solution Solution

3 Deutsche Bank is a leading global investment bank with a strong and profitable private clients reinforceing. Deutsche Bank is a leading global investment bank with a strong and profitable private clients reinforceing. It provides the market risk for the management. It provides the market risk for the management. Managing Risks. Increasing the Company's Value. Managing Risks. Increasing the Company's Value.

4 Risk management is a productive factor in a company’s value-added chain. Risk management is a productive factor in a company’s value-added chain. There are three aspects to a reliable risk management approach: There are three aspects to a reliable risk management approach: Create transparency on the scale of risk exposure Create transparency on the scale of risk exposure Knowledge on how to manage risk exposure Knowledge on how to manage risk exposure Implement this knowledge in your company. Implement this knowledge in your company.

5 Risk Management Services enables you to identify and manage all the risks your company is exposed to. Risk Management Services enables you to identify and manage all the risks your company is exposed to.

6 What the actuall case is?? The management of a large European industrial company felt that the existing risk policy and hedging program on an enterprise- wide level was not efficient due to independent departmental risk management practices. The management of a large European industrial company felt that the existing risk policy and hedging program on an enterprise- wide level was not efficient due to independent departmental risk management practices.

7 Deutsche Bank is a leading global Investment bank with a strong and Profitable private clients fran reinforcing. 80,456 employees in 72 countries* Unparalleled financial services throughout the world

8 A leader in Germony and Europe the bank is powerful and growing in North America,Asia and key imerging markets. A leader in Germony and Europe the bank is powerful and growing in North America,Asia and key imerging markets. The Corporate and Investment Bank Group Division is responsible for Deutsche Bank’s capital markets business, comprising the ori­gi­ na­tion, sales and trading of capital markets. The Corporate and Investment Bank Group Division is responsible for Deutsche Bank’s capital markets business, comprising the ori­gi­ na­tion, sales and trading of capital markets.

9 Founded in Berlin in 1870 to support the internationalization of business and to promote and facilitate trade relations between Germany, other European countries, and overseas markets. Founded in Berlin in 1870 to support the internationalization of business and to promote and facilitate trade relations between Germany, other European countries, and overseas markets. Awards Awards Deutsche Bank won a series of important awards, e.g. IFR "Bank of the Year" twice in three years. Deutsche Bank won a series of important awards, e.g. IFR "Bank of the Year" twice in three years.

10 Trade Finance Deutsche Bank is acknowledged as a leading global trade bank with more than 130 years experience. Deutsche Bank is acknowledged as a leading global trade bank with more than 130 years experience. It helps importers and exporters find optimal solutions for their individual requirements. It helps importers and exporters find optimal solutions for their individual requirements. Deutsche Bank Trade Finance offers :- Deutsche Bank Trade Finance offers :- corporates and financial leading technology corporates and financial leading technology online trading modules online trading modules

11 and an extensive range of trade products. and an extensive range of trade products. and services across its global network - which spans 77 locations in 37 countries - to increase the efficiency of cross-border trading. and services across its global network - which spans 77 locations in 37 countries - to increase the efficiency of cross-border trading.

12 Risk Management Services Risk Management Services Trade is full of uncertainties and risks. Trade is full of uncertainties and risks. Only those who recognize all the risks, Only those who recognize all the risks, can be successful over the long-term. can be successful over the long-term. Deutsche Bank’s (RMS) actively assists companies and public sector institutions in their risk management. Deutsche Bank’s (RMS) actively assists companies and public sector institutions in their risk management.

13 Capital Market Sales Capital Market Sales Exploiting the opportunities on all markets Exploiting the opportunities on all markets It connects the best of two worlds: - It connects the best of two worlds: - the performance capability and expertise of our global corporation with personal advice directly on location. the performance capability and expertise of our global corporation with personal advice directly on location. It offers investment and loan optimization as well as risk management from a single team. It offers investment and loan optimization as well as risk management from a single team.

14 Market Risk Analysis for a European Industrial Company Situation: Situation: The management of a large European industrial company felt that the existing risk policy and hedging program on an enterprise- wide level was not efficient due to independent departmental risk management practices The management of a large European industrial company felt that the existing risk policy and hedging program on an enterprise- wide level was not efficient due to independent departmental risk management practices

15 EFFORTS Our efforts followed three main objectives: Our efforts followed three main objectives: Merging the risk silos among Treasury, Sales and Procurement Merging the risk silos among Treasury, Sales and Procurement Measuring the enterprise-wide risk exposure and revealing natural hedge effects Measuring the enterprise-wide risk exposure and revealing natural hedge effects Developing a unique risk management policy and guideline framework Developing a unique risk management policy and guideline framework

16 Approach: We first needed to understand the departments‘ exposure structure and their current risk management activities. By means of interviews we first established an objective underlying cash flow forecast and financing model. We first needed to understand the departments‘ exposure structure and their current risk management activities. By means of interviews we first established an objective underlying cash flow forecast and financing model.

17 On the basis of this model we then generated various scenarios on the identified risk factors considering correlations. We computed the distribution of the company‘s finan-cial results which revealed the company‘s risk position. On the basis of this model we then generated various scenarios on the identified risk factors considering correlations. We computed the distribution of the company‘s finan-cial results which revealed the company‘s risk position. To assess the achievable hedging effects we integrated various analytically derived hedging strategies into the model and To assess the achievable hedging effects we integrated various analytically derived hedging strategies into the model and

18 tested their hedge effectiveness, taking into con- sideration inter-departmental netting and natural hedge effects. tested their hedge effectiveness, taking into con- sideration inter-departmental netting and natural hedge effects. This helped us formulate the right risk management policy including the definition of dynamic hedge ratios and enabled us to estimate the degree of the achievable reduction of potential costs (=risks). This helped us formulate the right risk management policy including the definition of dynamic hedge ratios and enabled us to estimate the degree of the achievable reduction of potential costs (=risks).

19 Result: Following this analysis we could demonstrate possibilities of real and substantial sav-ings for our client by implementing a new risk management policy and guideline frame-work. Following this analysis we could demonstrate possibilities of real and substantial sav-ings for our client by implementing a new risk management policy and guideline frame-work.

20 Financial Supply Chain Management Financial Supply Chain Management Deutsche Bank's Financial Supply Chain Management Solutions help you to:- Deutsche Bank's Financial Supply Chain Management Solutions help you to:- Maintain your competitive edge through more effective working capital management, Maintain your competitive edge through more effective working capital management, improved operating efficiencies, improved operating efficiencies, increased quality of information and increased quality of information and

21 maintaining sound working relationships with your trading partners. maintaining sound working relationships with your trading partners. Innovative products and services facilitate the smooth flow of commercial and financial information throughout your organization's financial supply chain. Innovative products and services facilitate the smooth flow of commercial and financial information throughout your organization's financial supply chain.

22 THANK YOU !