Instructions on Assessment
The assessment for this module is by means of an assignment and this assignment accounts for 80% of the overall mark for the module. You must attempt all the parts to meet the learning outcomes.
• Length maximum of 3000 words (with a tolerance level of 10%) which must be stated at the cover page of the assignment.
• Font – Arial 12, whole document being justified on both sides with 1.5 line spacing.
• Titles and headings should be in bold. Section headings should be numbered e.g. 3.1.
• Referencing must be as follows:
McMath, M. (2016) Liquidity mismatch and maturity transformation: a study on the UK banks, International Journal of Risk and Return, Vol. 11(7), pp. 21-29
• Citation should be as:
McMath (2015) and if more than two authors should be as McMath et al., (2015)
• Quotations of more than 2 lines must be indented and in italics with the reference and page number stated. Shorter quotations should be in italics but do not need to be indented.
• Tables and diagrams should be inserted at an appropriate point in the text and should be easily readable.
• If you are attaching any appendices, please keep it to the minimum.
Part B: Market Risk Estimation
2. You must select 5 corporations of your choice from the same industry. Assume that the analysis is performed on October 1st, 2020. All the data you need to collect must be consistent with this date.
Compute VaR of your portfolio using Variance-Covariance, Historical Simulation and Monte-Carlo methods. Time horizon 1 year. Confidence interval 99%. Calculate the Expected Shortfall. Present your results and discuss the findings. (750 words)
Part C: Foreign Exchange Risk
3. Discuss with examples the types of foreign exchange risks faced by Financial Institutions. Also, illustrate the hedging strategies used for foreign exchange risk. (750 words)
Part D: Credit Risk
4. Discuss Creditmetrics approach to calculating credit risk. What are benefits and shortcomings of the model? Suggest improvements in the model.(750 words)