BBF315/05: Risk Management Assignment, WOU, Malaysia Explain the advantages of options over forwards and futures and As a financial consultant, recommend to your corporate
| University | Wawasan Open University (WOU) |
| Subject | BBF315/05: Risk Management |
Question 1
(a) Explain the THREE (3) advantages of options over forwards and futures.
(b) As a financial consultant, recommend to your corporate customer of internal hedging strategies through leading and lagging. Prove your recommendation with an example.
Question 2
Illustrate the FIVE (5) primary methods of managing credit risk for derivatives dealers.
Question 3
You are given the following information about two assets:
The correlation coefficient between returns on assets A and B is 0.3.
Assume 252 days of trading a year.
- You have been asked to compute:
- portfolio expected return
- portfolio standard deviations
- one-day and ten-day Value at Risk (VaR)
- Interpret the result of part (a) above.
Question 4
- Describe the THREE (3) issues that a financial institution will have to consider when assessing credit risk from a single counterparty.
- Discuss how ‘credit quality’ can affect the counterparty to perform an obligation.
- Differentiate between credit ratings used by banks in relation to those used by others.
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