1. Explain how you would design the compensation scheme for an executive who has been charged with overseeing and coordinating the risk management strategies for mitigating a key risk facing the firm.
2. Your boss asks you to perform an earnings-at-risk assessment to examine the impact of US$-UK £ exchange rate uncertainty. Outline the steps that you would undertake to do this type of assessment.
3. Nordstrom, Inc. is a leading fashion specialty retailer of clothing, shoes and accessories for men, women, and children. The company is committed to providing customers with the best possible service and improving it every day. Nordstrom has 323 stores in 39 states and Canada and serves customers online in 96 countries through Nordstrom.com. Nordstromrack.com, which operates in partnership with the company’s private sale site HauteLook.com, gives customers in the U.S., Canada, and Australia access to off-price fashion at considerable savings.
Senior management has identified two key risks exposures to the company: 1) currency risk and 2) customer demand uncertainty.
a. Outline the steps you would undertake to assess the firm’s currency risk exposure using Cash-Flow-at-Risk as the risk assessment method.
b. Outline the steps you would undertake to assess the firm’s exposure to customer demand uncertainty using a Probability-Impact Matrix as the risk assessment method.