Greenwich Maritime
School
Business
Department
Course Code
FINA1084
Course Title
Level
Duration
THREE HOURS
Date
August 2012
August 2012
Course Title Financial Markets & Risk
Course Code FINA1084
Page 1 of 4
APPROVED
Section A Answer ONE question from this section
Question One
Explain and comment on FIVE of the following:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
Question Two
(i)
(ii)
Explain a market order, a limit order and a stop order. Give one specific
example of each order and critically discuss the potential benefits and
problems of these orders.
(60% of total mark)
Question Three
Explain carefully the five key theoretical relationships among the spot exchange rates,
forward exchange rates, inflation rates, and interest rates that result from international
arbitrage activities. Use numerical examples in your answer.
(Each part: 20% of total mark)
August 2012
Course Title Financial Markets & Risk
Course Code FINA1084
Page 2 of 4
APPROVED
Section B Answer TWO questions from this section
Question Four
(i)
List three borrower-specific factors and two market-specific factors that enter
into the credit decision. What is the impact of each type of factor on the risk
premium?
(30% of total mark)
(ii)
Explain how a linear discriminant analysis model works. Identify and discuss
the criticisms which have been made regarding the use of this type of model to
make credit risk evaluations.
(30% of total mark)
(iii)
Explain Credit Default Swaps (CDSs) using a specific example. Discuss the
attractions of the CDS market?
(40% of total mark)
Question Five
Assume you are a portfolio manager who has recently set up an international portfolio
including equities, bonds and short term money market investments. You are
concerned about downside risk and so have recently purchased some put options to
cover the equity market exposure. In addition, your equity investments include a
number of emerging markets which you consider offer growth potential. However, it
is difficult to obtain up-to-date prices because of illiquidity issues. You have been
asked to report monthly Value at Risk figures so that investors will have an idea of the
risk that they are running. You are considering which technique to use - parametric
model, historic simulation or Monte Carlo simulation.
(i)
(ii)
Explain the technique which you would use in the above situation and why
you prefer that technique.
(60% of total mark)
Question Six
(i)
Define risk capital and regulatory capital. Why is capital adequacy important
to banks?
(50% of total mark)
(ii)
August 2012
Course Title Financial Markets & Risk
Course Code FINA1084
Page 3 of 4
APPROVED
Question Seven
(i)
(ii)
Explain and critically evaluate the policies a bank should operate to manage
liquidity risk?
(60% of total mark)
August 2012
Course Title Financial Markets & Risk
Course Code FINA1084
Page 4 of 4