An assessment of market risk management in investment banking: a case study of Fidelity Bank Nigeria
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Background of the Study
Market risk management is a cornerstone of effective investment banking, involving the identification, assessment, and mitigation of risks arising from market volatility. Fidelity Bank Nigeria has developed comprehensive risk management frameworks that incorporate advanced analytical tools and real-time data to monitor exposure to interest rate fluctuations, currency movements, and economic shocks (Olayinka, 2023). The bank employs various techniques, including Value at Risk (VaR) analysis, stress testing, and scenario planning, to quantify potential losses and devise strategies to mitigate these risks. Enhanced market risk management not only protects the bank from adverse market conditions but also supports strategic decision-making and capital allocation. Recent technological advancements have enabled more precise risk measurement and faster response times, contributing to greater stability and resilience. However, challenges persist in ensuring that risk models remain robust amid rapidly changing market conditions. This study examines how Fidelity Bank Nigeria’s market risk management practices affect its investment banking performance, with an emphasis on identifying strengths, weaknesses, and opportunities for improvement. By analyzing historical risk data, internal reports, and market trends, the research aims to provide insights into effective risk management in emerging markets.
Statement of the Problem
Despite advanced risk management frameworks, Fidelity Bank Nigeria encounters challenges in accurately quantifying market risk in an environment characterized by rapid changes and high volatility. One major problem is the reliance on historical data that may not capture future market dynamics, leading to potential underestimation of risk (Adeleke, 2023). Furthermore, discrepancies in data quality and model calibration can result in inconsistent risk estimates, undermining confidence in the overall risk management process. These challenges not only affect capital allocation decisions but also expose the bank to unexpected losses during market downturns. The study seeks to examine the limitations of current market risk management practices at Fidelity Bank Nigeria and to propose improvements that can enhance risk prediction accuracy and strategic responsiveness.
Objectives of the Study
– To evaluate the effectiveness of market risk management practices at Fidelity Bank Nigeria.
– To identify limitations in current risk quantification methods.
– To propose enhancements for improving risk prediction and mitigation.
Research Questions
– How effective are current market risk management practices in mitigating risk?
– What limitations exist in the risk quantification models used by Fidelity Bank Nigeria?
– What measures can enhance the accuracy and responsiveness of market risk management?
Research Hypotheses
– H1: Advanced risk management practices improve capital protection.
– H2: Reliance on historical data limits risk forecasting accuracy.
– H3: Enhanced model calibration increases risk management effectiveness.
Scope and Limitations of the Study
The study is confined to the investment banking division of Fidelity Bank Nigeria, using internal risk reports, historical market data, and expert interviews; limitations include restricted access to proprietary risk models and the dynamic nature of global markets.
Definitions of Terms
– Market Risk Management: The process of identifying and mitigating risks arising from market volatility.
– Value at Risk (VaR): A statistical measure of the risk of loss.
– Stress Testing: Simulations to assess the impact of extreme market scenarios.
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