Determine and analyse the duration and convexity

Assignment Help Risk Management

Reference no: EM13804722

PART 1:

QUESTION 1:

Determine and analyse the duration and convexity approach to interest rate risk.

QUESTION 2:

Operational risk can be assessed either by using a quantitative approach. Explain and analyse that statement.

QUESTION 3:

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:

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:

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.

(Million USD)	2011	2010	2009	2008
Net interest income	7.623	7.387	6,265	5.328
Net fees & commissions income	3.370	2,941	2.661	1,881
Net trading income	2,890	2,405	1.261	920
Other operating income	1,301	1,235	880	491
OPERATING INCOME	15,184	13,968	11,067	8,620
OPERATING EXPENSES	-7,952	-7,611	-6,215	-4,796
OPERATING PROFIT Before IMPAIRMENT LOSSES 8, TAXATION ¹	7,232	6,357	4,852	3,824
Impariment losses on loans and advances & other credit risk provisions	-2,000	-1,321	-761	-629
Other impairment	-102	-469	-57	-15
Profit from associates	21	1	1	-2
EARNINGS BEFORE TAXATION	5,151	4,568	4,035	3,178

Reference no: EM13804722

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