The experience of the Asian financial crisis brought about devastating impact on the status of many Korean firms. As a result of it, many firms went bankrupt, and many people had to find themselves unemployed with no other option to exert. The main culprit of the crisis was the overwhelming amount of debt denominated in foreign currencies. As the volatility of exchange rate increased, total amount needed in Korean won to serve the principal and interest of the debt more than doubled at some points in the course of the crisis.
In order to stop the recurrence of the crisis, building of an effective risk management system is much needed. An effective risk management system requires a good infra-structure, appropriate strategy, and people with professional knowledge and know-hows. A firm should build an effective risk management system according to the size, degree of globalization, characteristics of business portfolios, and etc. VAR(value at risk) technique is a very effective means of quantifying how risky a portfolio is, so it can provide a good criterion based on which counter-risk strategy should be built.
In this thesis, a focus is placed on identifying and defining an effective risk management system and its building factors by comparing a Korean case and a foreign case, Siemens Financial Services. And a special interest is put on the ways to measure VAR. Historical simulation, delta-normal approach, and Monte Carlo simulation approach are probed with special focus on accuracy of these methods and ways to apply them into corporate level of risk management strategy.
