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    Tutorial 4

    Uploaded by

    mark sanad
    The document discusses enterprise risk management and related financial risk topics. It provides definitions for financial risk management and different types of financial risks like commodity price risk, interest rate risk, and currency exchange rate risk. It discusses hedging commodity price risks using futures contracts and provides examples of calculating profits and losses from hedging wheat production using futures contracts. It also defines currency exchange rate risk and discusses how pure risks are handled through risk retention, transfer, and control while speculative risks are handled through contractual provisions and capital market instruments.

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    Tutorial 4

    Uploaded by

    mark sanad
    16 views12 pages
    The document discusses enterprise risk management and related financial risk topics. It provides definitions for financial risk management and different types of financial risks like commodity price risk, interest rate risk, and currency exchange rate risk. It discusses hedging commodity price risks using futures contracts and provides examples of calculating profits and losses from hedging wheat production using futures contracts. It also defines currency exchange rate risk and discusses how pure risks are handled through risk retention, transfer, and control while speculative risks are handled through contractual provisions and capital market instruments.

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    The document discusses enterprise risk management and related financial risk topics. It provides definitions for financial risk management and different types of financial risks like commodity price risk, interest rate risk, and currency exchange rate risk. It discusses hedging commodity price risks using futures contracts and provides examples of calculating profits and losses from hedging wheat production using futures contracts. It also defines currency exchange rate risk and discusses how pure risks are handled through risk retention, transfer, and control while speculative risks are handled through contractual provisions and capital market instruments.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    16 views12 pages

    Tutorial 4

    Uploaded by

    mark sanad
    The document discusses enterprise risk management and related financial risk topics. It provides definitions for financial risk management and different types of financial risks like commodity price risk, interest rate risk, and currency exchange rate risk. It discusses hedging commodity price risks using futures contracts and provides examples of calculating profits and losses from hedging wheat production using futures contracts. It also defines currency exchange rate risk and discusses how pure risks are handled through risk retention, transfer, and control while speculative risks are handled through contractual provisions and capital market instruments.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
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    Tutorial

    (4)
    Enterprise risk management
    and related topics
    1)Choose
    financial risks include the following:
    A)Products price Fluctuations risk
    B) Interest rate risk
    C) Currency exchange rate risk
    D) All the above
    E) B&C
    2)Answer the following:

    What is the definition of Financial risk management ?

    Financial risk management refers to the identification, analysis,


    and treatment of speculative financial risks. These risks include the
    following:
    1. Commodity price risk
    2. Interest rate risk
    3. Currency exchange rate risk
    3)Complete:

    Interest rate risk is……………………………

    the risk of loss caused by adverse interest rate movements.


    4)True or False
    Hedging a Commodity Price Risk Using Forward
    Contracts.

    True
    Hedging a Commodity Price Risk Using Futures
    Contracts.
    5)For example:
    a wheat grower estimates in June that his production will total 50,000
    bushels of corn, with the harvest completed by December. If the price of
    futures contracts, is $5.80 per bushel. The futures contracts are traded in
    10,000-bushel units. If the price of Wheat in December :
    case 1: has dropped to $5.60 per bushel.
    case 2:has increased into $ 6 per bushel .

    Future contract= 50,000 * 5.80= 290,000


    Case1: 50,000 * 5.60= 280,000
    Profit =290,000-280,000=10,000
    Case 2: 50,000 * 6 = 300,000
    Loss = 290,000 - 300000 = –10000
    6)Complete:

    Currency exchange rate risk is………………………

    the risk of loss caused by changes in rate at which one nation’s


    currency may converted to another nation’s currency.
    7)Complete:
    Pure risks are handled by ………… through risk retention, risk
    transfer and risk control, while speculative risks are handled by
    ………… through contractual provisions and capital market
    instruments.

    Risk manager, Finance division.


    8)For example:
    In March: an investor decided to buy 500 put option of ABC stock
    with a strike price equals $25 and paid premium of $1.5
    case 1: if they expire today at price of $20
    case 2: if they expire tomorrow at price of $30

    Case1: Exercise Value: 25 – 20 = 5


    Profit = 500 * ( 5 – 1.5) = $1,750 “In the Money”

    Case 2: Exercise Value: 25 – 30 = (-5)


    Loss = “premium” = 500 * 1.5 = $750 “Out the Money”
    9)True or False
    A twice-trigger option is a provision that provides for
    payment only if two specified losses occur.

    FALSE
    A Double-trigger
    10)Answer the following:
    What are the functions of RIMS and ERM?
    • Prioritizes and manages those exposures as an interrelated risk portfolio rather than as individual risks

    • Evaluates the risk portfolio in the context of all significant internal and external environments,
    systems, circumstances, and stakeholders

    • Recognizes that individual risks across the organization are interrelated and can create a combined
    exposure that differs from the sum of the individual risks.

    • Provides a structured process for the management of all risks, whether those risks are primarily
    quantitative or qualitative in nature

    • Views the effective management of risk as a competitive advantage

    • Seeks to embed risk management as a component in all critical decisions through the organization
    Thank
    You

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