Quality Control Measures

The main purpose for implementing quality control processes is to protect against accidents and financial loss. Many quality control measures in financial risk management exist. Below are quality control measures that help organizations quantify and evaluate risk.

 

• Requiring Initial margins: requires counter parties to provide underlying assets with a specific value
  
• Limits in relation to issuers, and or guarantors: limits can also be applied to specific counter parties It may be in the organization's best interest to put limits on credit quality when there is a high correlation with the credit quality of the specific collateral submitted by the counter party.
  
• Additional guarantees: requires additional guarantees from organizations
  
• Exclusion: this measure excludes credit quality when exhibiting a high correlation with the credit quality of certain collateral
  
• Valuation haircuts: Some organizations may want to decrease the market value of an asset by a certain percentage to help set off risk
  
• Variation margin: This is very similar to a margin call on a brokerage account If the value of the underlying assets falls below a certain level, the organization will require a supply of additional assets or even cash.

 

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