Questions from Financial Management

Q: A bank has a business indicator (BI) of 5.

A bank has a business indicator (BI) of 5.5 billion euros. It has had eight operational risk losses in the last 10 years. The amounts of the losses in millions of euros are: 3, 7, 15, 65, 85, 150, 250...

Q: Discuss whether hedge funds are good or bad for the liquidity of

Discuss whether hedge funds are good or bad for the liquidity of markets.

Q: Suppose that a trader has bought some illiquid shares. In particular

Suppose that a trader has bought some illiquid shares. In particular, the trader has 100 shares of A, which is bid $50 and offer $60, and 200 shares of B, which is bid $25 and offer $35. What are the...

Q: Suppose that all options traders decide to switch from Black–Scholes

Suppose that all options traders decide to switch from Black–Scholes to another model that makes different assumptions about the behavior of asset prices. What effect do you think this would have on...

Q: An investor buys 100 shares in a mutual fund on January 1

An investor buys 100 shares in a mutual fund on January 1, 2018, for $50 each. The fund earns dividends of $2 and $3 per share during 2018 and 2019. These are reinvested in the fund. The fund’s realiz...

Q: Using Table 25.1, calculate the volatility a trader would

Using Table 25.1, calculate the volatility a trader would use for an 11-month option with a strike price of 0.98.

Q: Suppose that a financial institution uses an imprecise model for pricing and

Suppose that a financial institution uses an imprecise model for pricing and hedging a particular type of structured product. Discuss how, if at all, it is likely to realize its mistake.

Q: Suppose that daily gains (losses) are normally distributed with standard

Suppose that daily gains (losses) are normally distributed with standard deviation of $5 million. (a) Estimate the minimum regulatory capital the bank is required to hold. (Assume a multiplicative fac...

Q: Suppose that the economic capital estimates for two business units are Business

Suppose that the economic capital estimates for two business units are Business Units The correlation between market risk and credit risk in the same business unit is 0.3. The correlation between cr...

Q: Suppose that a bank’s sole business is to lend in two regions

Suppose that a bank’s sole business is to lend in two regions of the world. The lending in each region has the same characteristics as in Example 26.5 of Section 26.8. Lending to Region A is three tim...