riskmanagement - ssei · 2.write short notes on various process of strategic decision making....

Risk Management

Sanjay Saraf Educational Institute Pvt. Ltd. Page 219

162. Suppose you hold Rs. 2 crore shares of X Ltd. whose market price standarddeviation is 2% per day. Assuming 252 trading days a year, determine maximumloss level over the period of 1 trading day and 10 trading days with 99%confidence level.

Answer :

Assuming share prices are normally for level of 99%, the equivalent Z score fromNormal table of Cumulative Area shall be 2.33.Volatility in terms of rupees shall be:2% of Rs. 2 Crore = Rs. 4 lakhThe maximum loss for 1 day at 99% Confidence Level shall be:Rs. 4 lakh x 2.33 = Rs. 9.32 lakh,and expected maximum loss for 10 trading days shall be:√10 x Rs. 9.32 lakh = 29.47 lakhs

163. Consider a portfolio consisting of a Rs. 200,00,000 investment in shareXYZ and a Rs. 200,00,000 investment in share ABC. The daily standarddeviation of both shares is 1% and that the coefficient of correlation betweenthem is 0.3. You are required to determine the 10- day 99% value at risk for theportfolio?

Answer :

The standard deviation of the daily change in the investment in each asset isRs. 2,00,000 i.e. 2 lakhs. The variance of the portfolio’s daily change isV = 22 + 22 + 2 x 0.3 x 2 x 2 = 10.4σ (Standard Deviation) = 10.4 = Rs. 3.22 lakhsAccordingly, the standard deviation of the 10-day change isRs. 3.22 lakhs x 10 = Rs. 10.18 lakhFrom the Normal Table we see that z score for 1% is 2.33. This meansthat 1% of a normal distribution lies more than 2.33 standard deviations belowthe mean. The 10-day 99 percent value at risk is thereforeRs. 10.18 lakh = Rs. 23.72 lakh

Risk Management

Sanjay Saraf Educational Institute Pvt. Ltd. 20

164. How different stakeholders view the financial risk ?

Answer :

The financial risk can be evaluated from different point of views as follows:a. From stakeholder’s point of view: Major stakeholders of a business are

equity shareholders and they view financial gearing i.e. ratio of debt incapital structure of company as risk since in event of winding up of acompany they will be least prioritized. Even for a lender, existinggearing is also a risk since company having high gearingfaces more risk in default of payment of interest and principal repayment.

b. From Company’s point of view: From company’s point of view if acompany borrows excessively or lend to someone who defaults, then itcan be forced to go into liquidation.

c. From Government’s point of view: From Government’s point of view, thefinancial risk can be viewed as failure of any bank or (likeLehman Brothers) down grading of any financial institution leading tospread of distrust among society at large. Even this risk alsoincludes willful defaulters. This can also be extended to sovereign debt crisis.

STRATEGIC FINANCIALMANAGEMENT

DAWN SERIES

THEORY QUESTIONS

THEORY


CATEGORY : I MOST IMPORTANT QUESTIONS

CHAPTER 1

FINANCIAL POLICY AND CORPORATE STRATEGY

1. Enumerate 'Strategy' at different level of hierarchy.

2. Write short notes on various process of strategic decision making.

3. Explain briefly, how financial policy is linked to strategic management.

4. Explain Balancing Financial vis-a-vis Sustainable Growth.

CHAPTER 3

RISK MANAGEMENT

1. Describe the various parameters to identity the currency risk.

2. Describe Value at Risk and its application.

3. Explain the features of Value-at-Risk (VaR).

4. "The Financial Risk can be viewed from different perspective''. Explain thisstatement.

THEORY


CHAPTER 4

EQUITY ANALYSIS

1. Explain the challenges to Efficient Market Theory.

2. Explain Dow Jones theory.

3. Mention the various techniques used in economic analysis.

CHAPTER 6

PORTFOLIO MANAGEMENT

1. Explain Asset Allocation Strategies.

2. Interpret the Capital Asset Pricing Model (CAPM) and its relevant assumptions.

3. Write short note on Arbitrage Pricing Theory.

4. Short note on RERA.

5. How to allocate portfolio into broad asset classes.

6. What are alternate investments and their characteristics?

7. What are the popular types of alternate investments?

8. What are the features of alternate investments?

THEORY


CHAPTER 7

SECURITIZATION

1. Differentiate between PTS and PTC.

OR

Explain securitization in India.

2. Who are the participants in securitization?

3. Explain the mechanism of securitization.

4. What are the different types of securitized instruments?

5. What are the problems in securitization?

6. What are the benefits of securitization?

7. What are the features of securitization?

8. Pricing of securitization?

CHAPTER 8

MUTUAL FUNDS

1. What is exchange traded fund? What are its advantages?

THEORY


CHAPTER 9

DERIVATIVES ANALYSIS AND VALUATION

1. Discuss what you understand about Embedded Derivatives.

2. Define the following Greeks with respect to options :

(i) Delta

(ii) Gama

(iii)Vega

(iv)Rho

3. State any four assumptions of Black Scholes Model.

4. Write short note on factors affecting value of an option.

CHAPTER 10

FOREIGN EXCHANGE EXPOSURE AND RISK MANAGEMENT

1. Briefly explain the main strategies for exposure management.

2. What is the meaning of :

(i) Interest Rate Parity and

(ii) Purchasing Power Parity?

THEORY


CHAPTER 11

INTERNATIONAL FINANCIAL MANAGEMENT

1. Write short notes on Global Depository Receipts(GDRs).

2. Write a short note on Euro Convertible Bonds.

3. Write short note on American Depository Receipts (ADRs).

4. What is the impact of GDRs on Indian Capital Market?

CHAPTER 12

INTEREST RATE RISK MANAGEMENT

1. Discuss the types of Commodity Swaps.

2. Explain the meaning of the following relating to SWAP transactions:

(i) Plain Vanila Swaps

(ii) Basis Rate Swaps

(iii)Asset Swaps

(iv)Amortising Swaps

3. Give the meaning of Caps, Floors and Collar options with respect to Interest.

4. What do you know about swaptions and their uses?

5. Write short notes on Interest Swap.

6. Write short notes on Forward Rate Agreements.

THEORY


CHAPTER 14

MERGER , ACQUISITIONS AND CORPORATE RESTRUCTURING

1. What are the various reasons for demerger or divestment.

2. Write a short note on takeover by Reverse Bid.

3. Write brief notes on Leveraged Buy-Outs(LBO).

4. What is an equity curve out ? How does it differ from a spin off ?

5. Write short note on Takeover Strategies.

CHAPTER 15

INTERNATIONAL FINANCIAL CENTRE

1. What are the constituents of an IFC?

2. How is Islamic Finance different from conventional finance?

3. Explain the concept of Riba.

4. What are the Islamic Finance Products and explain them?

THEORY


CHAPTER 16

STARTUP FINANCE

1. Explain Angel Investors.

2. What are the innovative ways to finance a start-up?

3. What are the modes of financing start-up?

4. What is the Bootstrapping method?

5. Describe the start-up India initiative.

6. List the concepts and characteristics of venture capital.

7. Explain the concept of venture capital.

8. What is the advantage of venture capital investing to VCU?

9. What are the stages of VC investing?

10.Explain the VC Process.

11.Explain “Pitch Presentation” or “Pitch Deck”.

CHAPTER 17

SMALL AND MEDIUM ENTERPRISES

1. What is the importance of MSME and what is the classification of MSME as perMSMED Act, 2006.

2. What is the need for financing MSMEs?

3. What are the criteria for new listing?

4. What are the guidelines for listing?

5. What are the benefits of listing for MSME?

THEORY


CATEGORY : II LESS IMPORTANT QUESTIONS

CHAPTER 1

FINANCIAL POLICY AND CORPORATE STRATEGY

1. Write short notes on Financial Planning.

2. What makes an organisation financially sustainable?

CHAPTER 2

INDIAN FINANCIAL SYSTEM

1. Explain the key elements of a well-functioning financial system.

2. Distinguish between Banking and Non-Banking financial institutions.

3. Explain briefly the concept of Credit Rating.

CHAPTER 5

BOND ANALYSIS

1. Write short notes on Zero coupon bonds.

2. Why should the duration of a coupon carrying bond always be less than the time to

its maturity?

THEORY


CHAPTER 6

PORTFOLIO MANAGEMENT

1. Distinguish between 'Systematic risk' and 'Unsystematic risk'.

2. Write short note on Bought Out Deals (BODs).

CHAPTER 8

MUTUAL FUNDS

1. Distinction between Open ended schemes and Closed ended schemes.

2. What are the advantages of investing in Mutual Funds?

3. What are the drawbacks of investments in Mutual Funds?

4. Explain briefly about net asset value (NAV) of a Mutual Fund Scheme.

THEORY


CHAPTER 9

DERIVATIVES ANALYSIS AND VALUATION

1. Write short notes on Straddles and Strangles.

2. Distinguish between future contract and option contract.

3. Distinguish between Cash and Derivative Market.

4. What is the significance of an underlying in relation to a derivative instrument?

5. Distinguish between :

(i) Forward and Futures contracts.

(ii) Intrinsic value and Time value of an option.

6. Write short note on Marking to Market.

CHAPTER 10

FOREIGN EXCHANGE EXPOSURE AND RISK MANAGEMENT

1. Write short notes on Nostro, Vostro and Loro Accounts.

2. Write short note on Leading and Lagging in context of forex market.

3. Write short notes on operations in foreign exchange market are exposed to numberof risks.

THEORY


CHAPTER 11

INTERNATIONAL FINANCIAL MANAGEMENT

1. Write short notes on instruments of International Finance.

2. Explain briefly the salient features of Foreign Currency Convertible Bonds.

CHAPTER 14

MERGER , ACQUISITIONS AND CORPORATE RESTRUCTURING

1. Write short notes on Financial restructuring.

2. What is commercial meaning of synergy and how it used as a tool when deciding

Merger and Acquisitions?

3. Write short note on Horizontal merger and Vertical merger.

4. Explain synergy in the context of Mergers and Acquisitions.

5. Write short note on Conglomerate Merger.

riskmanagement - ssei · 2.write short notes on various process of strategic decision making....

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