A. Briefly explain three risk exposures that an analyst should report as part of an enterprise risk management system. B. Define market risk and the economic parameters considered when calculating market risk.
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A. Briefly explain three risk exposures that an analyst should report as part of an
enterprise risk management system.
B. Define market risk and the economic parameters considered when calculating
market risk.
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- If you are the financial analyst hired to look into credit risk of the hypothetical corona groceries before vaccine bank will lend them a loan, what will you do to provide vaccine bank with the information needed by them.When a company decides to sell its stock to the public for the first time, it hires the services of a broker or brokerage firm. True or FalseIn this simple insurance model, a company has a monopoly over a small market. There are 100K potential customers with a low risk profile, 60K potential customers with a medium risk profile, and 10K potential customers with a high risk profile. A person’s risk profile is important as it determines how much insurance is worth to the customer and how much money the customer will cost on average to the insurance company. The following table summarizes the estimates put together by the company: Low risk profile Medium risk profile High risk profile Number of potential customers 100,000 60,000 10,000 Expected expense per customer $2K $7K $15K Maximal price the customer isready to pay for insurance $3K $8K $16K Remark: Explaining where these numbers come from would require a subtler model that describes the risk covered by the insurance policy. While there is no need to do this for the purpose of this exercise, notice though how the maximal price…
- How is what WallStreetBets did differently from what hedge funds normally do? (GameStop is market manipulation vs. hedge fund billionaires shorting a stock is just an investment strategy.) Did Robinhood’s restrictions punish ordinary people, while large investors and hedge funds were able to trade freely?What is the mostly commonly used utility functions for the following and why: Risk Aversion Risk Seeking Risk NeutralRisk selection" refers to -- a. the incentive of insurance companies to avoid enrolling people who are in worse health and likely will require costly medical care. b. the phenomenon of individuals waiting until they are sick before purchasing health insurance. c. the process by which the Federal government identifies individuals at greatest risk for needing costly health care and provides them special high-risk insurance coverage. d. the incentive of shareholders to avoid investing in insurance companies which insure the most high risk patients.
- How might adverse selection make it difficult for an insurance market to operate?Henry Manne notes that a policy making it easy to fight off hostile takeovers would dilute: A. The ability of new shareholders to enter the investment B. The market for corporate control C. The power of free-flowing capital D. The stock options of high-level executives E. Congressional insider tradingDefine the term risk premium?
- When can we say that risk awareness and risk management aligned with the organizational strategyAIR, an airline company, used to deal only in derivatives of futures and swaps to hedge its jet fuel market risk. However, in the mid2003, AIR started trading in speculative derivative options and took a bullish view of the jet fuel market.The company predicted correctly but by the end of 2003, AIR revised its strategy to a bearish stance.The CEO signed contracts with several banks, buying put options and selling call options, but the prices soared above the strike priceof the call, and AIR faced a large deficit.1. Explain how AIR could have floored the losses through an adequate risk management procedureDespite mark to market losses of $30 million by mid 2004, the CEO increased AIR exposure.In addition, the trading was not disclosed in the financial statements, and AIR accounted for the options at intrinsic value, ignoringthe time value component.From March 2003, AIR started trading options on its own account.AIR was unable to meet some of the margin calls, resulting in the company…explain the two types of risks, and explain the two types of diversification of idiosyncratic tisks
