Reference no: EM132211897
Questions -
Q1. In answering this questions, you may consider principal assets and liabilities, principal sources of income and expenses, risks, regulations, or other differences.
a. Identify and explain two ways an open end mutual fund differs from a closed end mutual fund.
b. Identify and explain two ways a hedge fund differs from an open end mutual fund.
c. Identify and explain two ways a pension fund differs from an open end mutual fund?
Q2. How do the assets and liabilities for which a financial institution analyzes risk using market risk analysis differ from those for which it analyzes risk using interest rate risk analysis?
Q3. Depository institutions and insurance companies both carry reserves on their balance sheets in order to comply with regulatory requirements.
a. Explain how the reserve accounts of these two institutions differ.
b. Explain what an insurance company would do in order to increase its reserves.
Q4. a. Identify four different activities that provide revenue to securities firms (investment banks, broker/dealers, and etc.)
b. What are a securities firm's principal expenses?
c. What liabilities provide the greatest portion of securities firms' funding?
d. Identify a non-financial asset that is critical to the success of a securities firm.
Q5. a. What are the principal sources of income for an insurance company?
b. What are an insurance company's principal expenses?
c. How do the assets and liabilities of an insurance company differ from those of a commercial bank?
d. Identify the principal regulator for insurance companies.
Q6. a. Explain how daily earnings at risk is calculated for a stock portfolio using Risk Metrics.
b. Explain how 5-day value at risk is calculated for a debt portfolio using historical back simulation.
Q7. Calculate the one-day earnings at risk and the three day value at risk for a $250 million bond portfolio with a modified duration of 6.82 years, if the standard deviation of changes in interest rates is 0.038% at adverse price movement level of 0.1%.
Q8. Calculate the one-day earnings at risk and the three day value at risk for a portfolio consisting of the stocks indicated in the table below assuming that in the last 2500 trading days, the market return has been -5.25% or lower ten times. (The beta of a portfolio is equal to the weighted average of the betas for the portfolio's investments.)
|
Stock
|
number of shares
|
share price
|
beta
|
|
Tenet Healthcare
|
2500
|
23.33
|
1.55
|
|
Meritor
|
6000
|
16.52
|
2.64
|
|
Simpson Manufacturing
|
1000
|
54.01
|
1.81
|
|
Qorvo Inc
|
1000
|
59.58
|
1.52
|
Q9. A financial institution short sold 750,000 euros and purchased 850,000 Swiss francs. The current exchange rate for the euro $1.1400 per €1; and for the Swiss franc, SFr 0.995 per $1. The standard deviation of changes in the dollar value of the euro is .00535, the standard deviation of changes in the dollar value of the Swiss franc is .00442. The correlation coefficient between the dollar value of the euro and the dollar value of the Swiss franc is -0.81735. Calculate the daily earnings at risk and the five day value at risk for the portfolio or currencies based on a 0.01% adverse price movement.
Q10. a. What method did you use in question 7?
b. If there are 250 trading days per year, how often would you expect the debt portfolio in question 7 to have a loss equal to the value calculated in that question?
c. What method did you use in question 8?
d. What level of adverse price movement did you use in question 8?
Q11. How does the expected shortfall for the assets in questions 7, 8 and 9 compare to the daily earnings at risk calculated in those questions?