Risk Management and Financial Institutions 5th. Edition by John C. Hull | 9781119448112 | 1119448115 | Holooly

Financial Management

Risk Management and Financial Institutions

370 SOLVED PROBLEMS

Question: 15.5

A four-year interest rate swap currently has a negative value to a financial institution. Is the financial institution exposed to credit risk on the transaction? Explain your answer. How would the capital requirement be calculated under Basel I? ...

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There is some exposure. If the counterparty defaul...

Question: 15.13

Equation (15.9) gives the formula for the capital required under Basel II. It involves four terms being multiplied together. Explain each of these terms. ...

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EAD is the estimated exposure at default. LGD is t...

Question: 21.8

What is the autocorrelation for the default rates in Table 11.6, which can also be found on a spreadsheet on the author’s website? What are the implications of this for a Credit Risk Plus model? ...

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The autocorrelation is quite high at 0.546. This s...

Question: 27.6

A fund’s risk appetite is such that it wants to be 90% certain that it will not lose more than 20% in any one year. Using the performance of the S&P 500 between 1970 and 2016 (see Table 27.2), determine the beta the fund should have. Assume a risk-free rate of 3% per annum ...

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In equation (27.1), we set

R = −0.2, R_F = ...

Question: 26.6

Suppose that the economic capital estimates for two business units are as follows: The correlations are as in Table 26.3. Calculate the total economic capital for each business unit and the two business units together. ...

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The economic capital for Business Unit 1 is 96.85....

Question: 28.9

“Banks should aim to respond to change like IBM, not like Kodak.” Discuss this statement. ...

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IBM recognized that it could not rely on the sale ...

Question: 28.8

What is meant by RegTech? Give some examples. ...

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RegTech refers to technology developments that add...

Question: 28.7

“Index funds are a great idea, but if everyone chose them there would be no price discovery.” Do you agree with this argument? ...

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It is true that if everyone invested only in index...

Question: 28.6

“When thinking about the impact of FinTech, financial institutions should be thankful for regulation.” Explain. ...

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Regulation is a barrier to entry for FinTechs. In ...

Question: 28.5

Explain how P2P lending and equity crowdfunding work. ...

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In P2P lending, borrowers and lenders transact dir...

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