|
Module |
Financial Risk |
Please read all questions and information provided
carefully. Answer should be made in appropriate length keeping in view the
requirement of each question and total word counts allowed.
In addition, your assignment should demonstrate the
following qualities:
A critical appreciation of relevant literature and
its use to support argument, substantiate calculations and other aspects of the
assignment.
Taking ownership of the content, being prepared to
debate and argue a personal position, and providing evidence of evaluative
skills. A submission made up of extracts from published sources which is
descriptive or simply just theoretical regurgitation is not acceptable. Your
submission must have interpretation and consideration of the challenges and
issues of taking theory into practice.
Logical flow of ideas and treatment; appropriate
selection of real world factors related to the companies under scrutiny.
Evidence of additional personal research, and the
ability to analyse material from a variety of appropriate relevant
perspectives.
Presentation, structure, appropriateness of
methodology, breaking into section headings/subheadings, tidiness.
Marks will be awarded for proper referencing and
originality of work. Also note that plagiarism is a serious offence and your
submission will be electronically checked.
Your report must be handed in electronically
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PART 1 (60 Marks)
Students should answer ALL questions.
QUESTION 1: (15 marks)
Determine and analyse the duration and
convexity approach to interest rate risk.
QUESTION 2: (15 marks)
Operational risk can be assessed either by
using a quantitative approach. Explain and analyse that statement.
QUESTION 3: (15 marks)
Value-at-Risk (VaR) is defined as the
probability of suffering a loss in excess of a given threshold or confidence
interval. Can you analyse and appreciate the existing VaR methodologies in
terms of market risk evaluation?
QUESTION 4: (15 marks)
The Basel 2 Agreement defines Counterparty
Credit Risk (CCR) as the risk that the counterparty to a transaction could
default before the final settlement of the transaction’s cash flows. Do you
think the new Credit Value Adjustment (CVA) methodology is the most appropriate
approach to assess the CCR related to over-the-counter transactions?
PART
2 (40 marks)
You have been asked to write a financial
risk brief report for National Trust Banking Corporation’s senior management.
Your work should both address the bank’s potential concerns and questions, and
take into account the fact that your audience’s participants are NOT
necessarily risk management experts.
Your brief report will have to answer the
following questions:
Determine and analyse the bank’s liquidity
risk situation, between 2010 and 2011, by using traditional liquidity ratio
analysis, and evaluate its potential change with respect to the new Basel 3
approach of liquidity (See Exhibit 1, 2, and 3).
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