Earnings at risk (EaR) and the related cash flow at risk (CFaR) Earnings at Risk
bloomsburycollections.com are

measures Measure may refer to: * Measurement, the assignment of a number to a characteristic of an object or event Law * Ballot measure, proposed legislation in the United States * Church of England Measure, legislation of the Church of England * Measu ...

reflecting the potential impact of

market risk Market risk is the risk of losses in positions arising from movements in market variables like prices and volatility. There is no unique classification as each classification may refer to different aspects of market risk. Nevertheless, the most ...

on the

income statement An income statement or profit and loss accountProfessional English in Use - Finance, Cambridge University Press, p. 10 (also referred to as a ''profit and loss statement'' (P&L), ''statement of profit or loss'', ''revenue statement'', ''stateme ...

and

cash flow statement In financial accounting, a cash flow statement, also known as ''statement of cash flows'', is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to ope ...

respectively, and hence the risk to the institution's

return on assets The return on assets (ROA) shows the percentage of how profitable a company's assets are in generating revenue. ROA can be computed as below: :\mathrm = \frac This number tells you what the company can do with what it has, ''i.e.'' how many doll ...

and, ultimately,

return on equity The return on equity (ROE) is a measure of the profitability of a business in relation to the equity. Because shareholder's equity can be calculated by taking all assets and subtracting all liabilities, ROE can also be thought of as a return on ''a ...

. EaR measures the impact on net interest income due to movements in

foreign exchange The foreign exchange market (Forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. It includes all as ...

and interest rates; while CFaR measures possible shortfalls in cash flow due to these. Both are calculated under simulation as for

Value at Risk Value at risk (VaR) is a measure of the risk of loss for investments. It estimates how much a set of investments might lose (with a given probability), given normal market conditions, in a set time period such as a day. VaR is typically used by ...

References

Mathematical finance Financial risk modeling Market risk Monte Carlo methods in finance Capital management {{finance stub