Financial Risk Management

ASSIGNMENT

1. Critically evaluate the advanced concepts and procedures of financial risk management;

2. Critically evaluate and quantify financial risk;

3. Identify and apply practical and theoretical concepts to the management of financial risk in a business environment.

AIMS OF THE MODULE
The module aims to:

1. Provide students with an understanding of how financial and non-financial corporations can identify, quantify and manage risks.

2. Provide an understanding of how corporate management may contribute to increasing shareholder wealth.

3. Examine the characteristics of the four major derivative instruments: forwards, futures, options and swaps and consider how their value is determined and how they may be used to manage financial risk.

ASSIGNMENT DECRIPTION
Have a look at the charts below:

1) Discuss how the ECB and the FED are coping with the surge of inflation.

2) Suppose you were a fixed income trader. Choose 3 Italian Government bonds with
maturities equal to 5, 10 and 20 years respectively and compute their Duration and
Convexity. Quantify the impact of the foregoing monetary policy choices on your
portfolio (for simplicity, assume a parallel shift in the yield curve). Do not forget to provide
with a detailed overview of the relationship between bond prices and interest rate levels.

3) Discuss the impact of the monetary tightening on the EUR/USD exchange rate.

4) Suppose you were a trader, how would hedge your portfolio against FX risk using options?
Do not forget to provide with both a theoretical discussion and a quantitative realistic
example of the resulting payoff profile.