Financial Risk Management — DU B.Com. (Hons.) Previous Year Question Papers

Type of the Paper : DSE Discuss the Risk Management Process in detail. What is meant by systematic and unsystematic risk? Explain their sources and how each can be managed in a diversified portfolio. A portfolio consists of two assets: Asset A: Expected return = 12%, Standard deviation = 8% Asset B: Expected return = 18%, Standard deviation = 12% Correlation coefficient = 0.5 Weights: 60% in A and 40% in B Calculate the portfolio return and risk. a) b) a) b) Explain the different methods of measuring and controlling risk using statistical techniques. Discuss their advantages and limitations. Explain financial derivatives as a tool of risk management. What are risk limits in financial institutions? Explain Open Position Limits, Asset Position Limits, Deal Size Limits and Stop Loss Limits. An investment has the following returns under different scenarios : Scenario Probability Return (%) a) Expected Return b) Standard Deviation a) b) Explain simulation methods in measuring risk. How are Monte Carlo simulations used in financial risk analysis? What are stress testing and back testing? OR a) b) Discuss Extreme Value Theory (EVT) and its application in measuring financial risk. Explain the importance of risk management with examples. a) b) a) b) Explain equity portfolio risk and methods to measure downside exposure in equity investments. Discuss the basics of credit risk, including Probability of Default (PD) and Loss Given Default (LGD). How is credit risk measured and managed? Explain liquidity risk and its components such as tightness, depth and resilience. Also discuss mark-to-market and market-to-exit concepts. Calculate Liquidity Value at Risk (LVaR) Portfolio Value = ₹20, 00,000 Liquidity Loss = 3% Confidence Level = 99% Q5 Write short note on any three of the following (6*3=18 marks): a) Risk Immunization Strategies. b) Financial Derivatives c) Variance-Covariance Approach. d) Liquidity trading and funding e) marked-to-market and market-to-exit concept ⅐• =29, • [ (Standard deviation) = 8% HEre (Correlation coefficient: 0.5 TRERT Scenario metal Probability Reef Return (%) đ) 31Чf8 Rc (Expected Return) [1) Had dard (Standard Deviation) 0 Stress testing 8 90 2172 (Back testing) q฿? <{y (downside exposure) → (robability of Default - ARea a (Liquidity Loss): 3% fear Fa (Confidence Level): 99% 3} \{a {a dİ (Risk Immunization Strategies)I # 12{6}{ EM (Variance-Covariance Approach) | İ< { 49 (Liquidity trading and funding) I