QUESTION 1
a) An increasingly popular risk analysis technique is VAR. Explain, illustrate and assess this technique.
b) Discuss what strategies can be used as risk planning tools?
c) Describe the following techniques and state in what part of risk management process they fit in-
- Sensitivity Analysis
- Risk Maps
- Risk Questionnaires
QUESTION 2
a) Describe how the practice of risk management similar and different to hedging?
b) "Risk philosophy and risk appetite must go in hand in hand to ensure that the organisation has strength and vitality." Discuss
c) Clearly explain the following terms:
- Currency option,
- Future contracts
- Operational risk under Basel II
- Stress testing
d) The stock of B Ltd, performs relatively well to other stocks during recessionary risks. The stocks of C ltd on the other hand, does well during the growth periods. The stock of B Ltd and C ltd are currently selling for $ 100 per share.
|
Details
|
High Growth
|
Low Growth
|
Stagnation
|
Recession
|
|
Probability
|
0.3
|
0.4
|
0.2
|
0.1
|
|
Return on B stock
|
100
|
110
|
120
|
140
|
|
Return on C stock
|
150
|
130
|
90
|
60
|
Calculate the expected return and risk on investing $ 1000 in the equity of B Ltd and C Ltd. Comment on the results.