Risk management case 1
BANK 3003 (SP5, 2020)
Financial Risk Analysis
Course Coordinator: Hao Zhou
This assignment should be completed in groups of 1-4 students. This assignment is designed to enhance students’ knowledge in the following: an understanding of and ability to identify the financial risks faced by individuals and corporations; an ability to undertake statistical analysis, including calculation of individual and portfolio statistics in Excel; familiarity with the construction of tables and graphics and their integration into written reports; and high-level written communication skills.
Your team has been asked to provide analysis for and advice to an Australian-based, high net worth (HNW) client, who is considering the purchase of a structured financial product (SFP) issued by a US-based investment bank. Your client wishes to be advised on the financial risks to which they would be exposed in association with investment in this SFP.
You have the following information on this SFP,
You also have other information on key financial variables (as of the end of June 2020, the date you will assume as ‘now/today’ for undertaking your calculations):
Note: Not all information given above can be used in this your calculations. Some are not appropriate to use and/or incomplete. A part of the assessment is to identify which pieces of information/data should be used.
Prepare a brief (of no more than 3 pages) report in which your team:
(a) Identifies the financial risks to which your HNW client would have exposure if invested in this SFP. (Hint: you should tabulate the different financial risks to which an investor would be exposed if they bought the SFP and the sources of each financial risk.)
(b) Quantitatively analyse the risk factors for which you are given data. Analyse individual risk factors and the relationship between these risk factors. (Hint: For quantitative analyses, you should focus on the characteristics of the risk factors. Quantitatively establish how a risk factor affects the SFP is not strictly required. At minimum, you should calculate the mean, standard deviation and correlations of the risk factors.)
(c) Discuss how each risk factor may impact the return of the SFP, including the risk factors you have not quantitatively analysed. Given your analysis of the data available to you, which financial risks do you think are likely to be of most concern to the client? Provide a brief justification/support for your answer.
What to Submit and When?
Each group should submit one copy of the following via learnonline:
Forming your group
This Assignment should be completed by students working in groups of 1 to 4 students. Students are free to form their own groups. It is noticeable that early and deliberate group formation is associated with successful assessment outcome. Only one final assignment per group should be submitted.