Master s degree in finance. Final assignment on financial risk management. The assignment has 2 main questions with sub questions (5 in total) it needs expertise in risk management and insight on banking sectors. Harvard ref. And zero plagiarism. This is a re-submission needing to pas
LSBFModule Financial Risk Management Assignment TitleFRMWritten Coursework Assignment Assignment TypeIndividual AssignmentWord Limit3,500-4,000Weighting100%Issue Date24thAugust 2020Submission Date28thSeptember 2020Feedback Date11thNovember 2020Issued by (Assessor)Nataliia StukaloInternal VerifierShahnaz HamidPlagiarismWhen submitting work for assessment, students should be aware of theLSBFguidance and regulations concerning plagiarism. All submissions should be your own original work. You must submit an electronic copy of your work. Your submission will be electronically checked. Harvard Referencing & Special InstructionsThe Harvard Referencing System must be used. The Wikipedia website must not be referenced in your work. Youare allowed toupload only ONE attachment (e.g. an Excel sheet) in addition to your original assignment, unless there is a requirement for more than one document in the assignment brief.You must upload your assignment in PDF or Word document format. Your paper will not be graded if it is submitted in any other format. If you submit your assignment as a PDF version, please include the exact word count of the assignment on the title page.
Learning OutcomesOn successful completion of this assignment you will be able to:1.Describe and critically analyse the inherent challenges and risks facing banking institutions;2.Critically Evaluate the pricing, profitability and credit risks taken during the lending cycle;3.Evaluate the nature of market and operational risk;4.Explain and compare the challenges facing banking groups in the management of assets and liabilities;5.Clearly and concisely explain, analyse and evaluate, using logical arguments, the key strategic issues in management of risk in financial institutions.Grading CriteriaPostgraduate GradingCriteria for this assignment is available at the end of this document.
Your TaskStudents should answerALLquestions.QUESTION 1: (40marks)It is now November 2017 and you, a financial analyst, have had better times. Your company, an investment fund, is maintaining a portfolio of assets, which consists of a mixture of government and corporate bonds and shares. The Bank of England (BoE) has just published the latest stress tests of the banking institutions in the UK. The Royal Bank of Scotland (RBS), a bank in which your fund is invested (5% of the fund’s overall assets, both in corporate bonds and equity), has passed the minimum requirements in both CET1 capital ratio and Tier 1 leverage ratio, but hasn’t passed the more advanced benchmark, the Systemic Reference Point, an extra buffer in case the economy experiences systemic risk, for example, in case of severe recession.Several panicking board members have already called you and demanded information on the extent of the fund’s exposure, especially in the context of heightened uncertainty caused by the Brexit negotiations. Your team of analysts need to discuss the issue.Address the following issues in your discussion:1.Critically evaluate what implications the stress tests will have on the RBS’s stock and bond values in the short and long term. (LO2, 20marks)2.Explain and analysehow the stress test results will impact the bank’s ability to raise capital and what actionsRBS’s managementcantake to resolve the situation. (LO5, 20marks)(2,000 words)Note: The Royal Bank of Scotland has takenseveral steps to correct its financial situation in the period since the release of the stress tests. Youcan use these actions for inspiration in your presentation, but structure your recommendationsas if they were given in the period just after the release.QUESTION 2: (60marks)Mortgage Backed Securities (MBS),debt securities based on risk management techniques of securitisationand portfolio optimisation, contributed to, if notoutright caused, the mortgage crisis in the United Statesin 2007-2010.Why did MBSs, a securitisation instrument designed tomake investments safer,cause such damage?Mortgage houses and banks gave their clientsmortgages to buy houses, with each mortgage backedby the
value of the properties. The mortgages were thenpooled together, and securities backed by variousproperties were sold to investors. The properties werenot chosen randomly –the MBSswere backed by verycarefully constructed portfoliosof properties diversified byrisk level and geographical location. This securitisation anddiversification allowed the market to boom.Evenrelatively risky borrowers were considered safe (as therisk was considered diversified away), and the cost ofborrowing was very low.The geographical diversification was part of theproblem. Alan Greenspan, the FED chairman during theyears leading to the financial crisis, said as late asin 2006 that housing prices had never endured anationwide decline and maintained that real estate isa local market, so the risk could be diversified. Ironically,thefirst nationwide property slump started in the secondhalf of 2006.The mortgage crisis wasn’t caused only by misconceived diversification;conflicts of interest alsoplayed a role. Rating agencies were paid forevaluatingthe risk of the MBSs by their issuers, which could haveplayed a role in their failure to identify the increaseddefault rates on time.Required: Write an essay which undertakes a criticalevaluation of the risk models used before and after themortgage crisis (2,000 words). In your essay,concentrate on the following:1. Critically analyse concepts behind MBSs and how risk was diversified to secure lending. Analyse what exposure banking institutions had to the subprime mortgage crisis and how MBSs contributed to this exposure. (LO1, 20 marks)2. Although it originated in the U.S., thesubprime credit crisis had implications aroundthe world. Evaluatetheimplications of the market risk caused by thesubprime credit crisis. (LO3, 20marks)3. Analyse the concept of geographicaldiversification of assets and liabilities andreporton its applicability today. (LO4, 20marks)Total 100 marks
LSBFModule Financial Risk Management Assignment TitleFRMWritten Coursework Assignment Assignment TypeIndividual AssignmentWord Limit3,500-4,000Weighting100%Issue Date24thAugust 2020Submission Date28thSeptember 2020Feedback Date11thNovember 2020Issued by (Assessor)Nataliia StukaloInternal VerifierShahnaz HamidPlagiarismWhen submitting work for assessment, students should be aware of theLSBFguidance and regulations concerning plagiarism. All submissions should be your own original work. You must submit an electronic copy of your work. Your submission will be electronically checked. Harvard Referencing & Special InstructionsThe Harvard Referencing System must be used. The Wikipedia website must not be referenced in your work. Youare allowed toupload only ONE attachment (e.g. an Excel sheet) in addition to your original assignment, unless there is a requirement for more than one document in the assignment brief.You must upload your assignment in PDF or Word document format. Your paper will not be graded if it is submitted in any other format. If you submit your assignment as a PDF version, please include the exact word count of the assignment on the title page.
Learning OutcomesOn successful completion of this assignment you will be able to:1.Describe and critically analyse the inherent challenges and risks facing banking institutions;2.Critically Evaluate the pricing, profitability and credit risks taken during the lending cycle;3.Evaluate the nature of market and operational risk;4.Explain and compare the challenges facing banking groups in the management of assets and liabilities;5.Clearly and concisely explain, analyse and evaluate, using logical arguments, the key strategic issues in management of risk in financial institutions.Grading CriteriaPostgraduate GradingCriteria for this assignment is available at the end of this document.
Your TaskStudents should answerALLquestions.QUESTION 1: (40marks)It is now November 2017 and you, a financial analyst, have had better times. Your company, an investment fund, is maintaining a portfolio of assets, which consists of a mixture of government and corporate bonds and shares. The Bank of England (BoE) has just published the latest stress tests of the banking institutions in the UK. The Royal Bank of Scotland (RBS), a bank in which your fund is invested (5% of the fund’s overall assets, both in corporate bonds and equity), has passed the minimum requirements in both CET1 capital ratio and Tier 1 leverage ratio, but hasn’t passed the more advanced benchmark, the Systemic Reference Point, an extra buffer in case the economy experiences systemic risk, for example, in case of severe recession.Several panicking board members have already called you and demanded information on the extent of the fund’s exposure, especially in the context of heightened uncertainty caused by the Brexit negotiations. Your team of analysts need to discuss the issue.Address the following issues in your discussion:1.Critically evaluate what implications the stress tests will have on the RBS’s stock and bond values in the short and long term. (LO2, 20marks)2.Explain and analysehow the stress test results will impact the bank’s ability to raise capital and what actionsRBS’s managementcantake to resolve the situation. (LO5, 20marks)(2,000 words)Note: The Royal Bank of Scotland has takenseveral steps to correct its financial situation in the period since the release of the stress tests. Youcan use these actions for inspiration in your presentation, but structure your recommendationsas if they were given in the period just after the release.QUESTION 2: (60marks)Mortgage Backed Securities (MBS),debt securities based on risk management techniques of securitisationand portfolio optimisation, contributed to, if notoutright caused, the mortgage crisis in the United Statesin 2007-2010.Why did MBSs, a securitisation instrument designed tomake investments safer,cause such damage?Mortgage houses and banks gave their clientsmortgages to buy houses, with each mortgage backedby the
value of the properties. The mortgages were thenpooled together, and securities backed by variousproperties were sold to investors. The properties werenot chosen randomly –the MBSswere backed by verycarefully constructed portfoliosof properties diversified byrisk level and geographical location. This securitisation anddiversification allowed the market to boom.Evenrelatively risky borrowers were considered safe (as therisk was considered diversified away), and the cost ofborrowing was very low.The geographical diversification was part of theproblem. Alan Greenspan, the FED chairman during theyears leading to the financial crisis, said as late asin 2006 that housing prices had never endured anationwide decline and maintained that real estate isa local market, so the risk could be diversified. Ironically,thefirst nationwide property slump started in the secondhalf of 2006.The mortgage crisis wasn’t caused only by misconceived diversification;conflicts of interest alsoplayed a role. Rating agencies were paid forevaluatingthe risk of the MBSs by their issuers, which could haveplayed a role in their failure to identify the increaseddefault rates on time.Required: Write an essay which undertakes a criticalevaluation of the risk models used before and after themortgage crisis (2,000 words). In your essay,concentrate on the following:1. Critically analyse concepts behind MBSs and how risk was diversified to secure lending. Analyse what exposure banking institutions had to the subprime mortgage crisis and how MBSs contributed to this exposure. (LO1, 20 marks)2. Although it originated in the U.S., thesubprime credit crisis had implications aroundthe world. Evaluatetheimplications of the market risk caused by thesubprime credit crisis. (LO3, 20marks)3. Analyse the concept of geographicaldiversification of assets and liabilities andreporton its applicability today. (LO4, 20marks)Total 100 marks
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