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Module 1 Introduction to financial risk management (FRM)

Financial Risk Management
Module 1 Introduction to financial risk management
Question 1
In 2009 which organisation posted the biggest corporate loss in US history and in the same month announced staff bonuses in excess of USD 450 million?

American International Group (AIG).
Lehman Brothers.
General Motors.
Merrill Lynch.

Question 2
The Gig, an Australian heavy metal band, has decided to let its fans invest in the music industry and guaranteed that for every $100 invested in The Gig Music Fund they will get a monthly dividend of $12.00.
After six months $20 million has been invested and the depositors have all received $12.00 a month.
A spokesman announced that the band needs to raise an additional $5 million to fund a new album and offers music lovers $15 per month for every new $100 invested.
Your parents are aware you are completing a financial risk management course and ask your advice as to whether or not to invest.
You respond:

The Gig has a proven track record of paying dividends so go ahead with the investment.
The new album is a guaranteed success, so there is little risk involved.
This appears to be a Ponzi scheme so reject the offer.
Everyone so far has made money and hundreds of people have already done their research, so it is a quality investment.

Question 3
The board of South Soap Ltd, an Australian soap manufacturer exporting throughout the Pacific, has decided to appoint a treasurer to manage its $100 million per annum foreign exchange exposure.
When setting the performance measure, the board rationale was:
As we have never had a treasurer before, we will benchmark the treasurer’s performance against our current policy of doing nothing— which we believe is risk-neutral.

Semester 1, 2012

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Module 1 Introduction...

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