Compounding effect and Third line of defence: Difference between pages

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imported>Brianlenoach@hotmail.co.uk
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imported>Doug Williamson
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The additional growth or additional interest, resulting from the compounding effects of - for example - interest on interest.
The first, second and third lines of defence are identified by the Bank of England in relation to establishing and defending fair and effective markets.


Another example is the compounding effect of growth on growth.  
These 'lines of defence' are the governance and controls to protect against risks in an organisation.




For example, interest quoted at 6% per annum, compounded annually, for two years maturity, means that the interest accumulated after two years is:
The third line of defence is an independent assurance function - the internal audit function.


= [1.06 x 1.06] - 1


= 12.36% for the two year period.


 
==See also==
Without the additional interest on interest, the total interest would have been simply
*[[First line of defence]]
 
*[[Second line of defence]]
6% per annum x 2 years
* [[Audit]]
 
= 12.00%.
 
 
So the compounding effect of interest on interest here
 
= 12.36% - 12.00%
 
= 0.36% over the two year period (= 6% x 6%).
 
 
When both the number of periods and the rate of growth/interest are low, compounding effects are relatively small.
When either the number of periods or the rate of growth/interest - or both - are greater, compounding effects become very much larger.
 
 
== See also ==
* [[Compound interest]]
* [[Compounding factor]]
* [[Continuously compounded rate of return]]
 
[[Category:Manage_risks]]

Revision as of 10:37, 5 August 2015

The first, second and third lines of defence are identified by the Bank of England in relation to establishing and defending fair and effective markets.

These 'lines of defence' are the governance and controls to protect against risks in an organisation.


The third line of defence is an independent assurance function - the internal audit function.


See also

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