Elective: Risk Management (Part -1)

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National Institute of Business Management

Chennai - 020

EMBA/ MBA

Elective: Risk Management (Part -1)

Attend any 4 questions.  Each question carries 25 marks

(Each answer should be of minimum 2 pages / of 300 words)

Question. 1.        Explain the importance of break even analysis in decision making.

Answer:A break-even analysis is an analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even analysis calculates what is known as a margin of safety, the amount that revenues exceed the break-even point. This is the amount that revenues can fall while still staying above the break-even point.

Break-even analysis is a supply-side analysis; that is, it only analyzes the costs of the sales. It does not analyze how demand may be affected at different price levels.

Question. 2.        What are the variable factors, which should be analyzed to arrive at the Risk causes/factors?Explain.

Answer:Factor analysis is a statistical method used to describe variability among observed, correlated variables in terms of a potentially lower number of unobserved variables called factors. For example, it is possible that variations in six observed variables mainly reflect the variations in two unobserved (underlying) variables. Factor analysis searches for such joint variations in response to unobserved latent variables. The observed

Question. 3.        How would you handle the problem related to replacement value in respect of an interest rate swap? Explain and support your answer with examples.

Answer:

Question. 4.        Can VaR applied in non financial use? Explain how.

Answer:Value at Risk (VaR) is a measure of the risk of investments. It estimates how much a set of investments might lose, given normal market conditions, in a set time period such as a day. VaR is typically used by firms and regulators in the financial industry to gauge the amount of assets needed to cover possible losses.

In financial mathematics and financial risk management, VaR is defined as: for a given portfolio, time horizon, and probability p, the p VaR is defined

Question. 5.        Describe corporate governance in terms of credit derivatives.

Answer:Although credit derivatives may have beneficial effects such as enhancing the resilience of the financial system, these benefits can only be reaped if credit derivatives are used prudently and responsibly by all market participants. We argue that the current regulatory regime is not sufficient to induce market participants to use credit derivatives in a desirable way. Rather, the existing system, which is mainly based on self-regulatory initiatives, should be accompanied by supervisory action such as the introduction of mandatory disclosure of

Question. 6.        Globalization and liberalization have provided room to Indian industry to analyze global market and method to explore it. Explain.

Answer:

25 x 4=100 marks

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