LATIN AMERICA TRAINING AND DEVELOPMENT CENTER Introduction to Risk Management 05/15/96 Introduction to Risk Management Warning This workbook is the product of, and copy- righted by, Citicorp North America, Inc. It is solely for the internal use of Citicorp North America, Inc., and may not be used for any other purpose. It is unlawful to reproduce the contents of these materials, in whole or in part, by any method, printed, electronic, or otherwise; or to disseminate or sell the same without the prior written consent of Training and Development Centers - Asia Pacific / CEEMEA / Latin America. Please sign your name in the space below. Table of Contents INTRODUCTION Introduction: Risk Management Module .vii Overview .vii Introduction to Risk Management .xi Overview xi Objectives .xi Topics .xii The Workbook .xii UNIT 1: Risk Categories Introduction . 1-1 Unit Objectives . 1-1 Major Risk Categories 1-2 Credit Risk . 1-3 Lending Risk 1-4 Direct Lending Risk 1-4 Contingent Lending Risk . 1-4 Issuer Risk 1-5 Counterparty Risk 1-6 Pre-settlement Risk 1-6 Settlement Risk 1-7 Clearing Risk .1-8 Summary — Credit Risk .1-8 Market Risk 1-9 Price Risk .1-9 Interest Rates 1-9 Commodity Prices 1-10 Volatility in Options 1-11 Liquidity Risk .1-11 v05/15/96 Version 2.0 p01/07/00