FIN382 Risk Management for Finance and Technology Tutor-Marked Assignment July 2025 Presentation | SUSS

FIN382 TUTOR-MARKED ASSIGNMENT (TMA) 

This assignment is worth 18% of the final mark for FIN382 Risk Management for Finance and Technology.  

Note to Students:  

You are to include the following particulars in your submission: Course Code, Title of the TMA, SUSS PI No., Your Name and Submission Date.

You must answer ALL questions. (Total 100 marks)  

FIN382 Question 1

You are the advisor of Howdy, a leading technology firm, manufacturing some of the most advanced graphics processing units (GPUs) for the artificial intelligence (AI), gaming, creative design, autonomous vehicles, and robotics industries. In the first week of work, you had to answer a broad range of questions on risk management. To address those, you had to remember some of the practical lessons from your studies at SUSS.  

Mrs. Brown, the Chief Operations Officer, has asked you to prioritise five (5) different risks:   

(i) A highly predictable fall in crypto demand, which is less than 2% of Howdy’s business.  
(ii) A remote environmental law proposal to ban new Howdy GPU for the huge AI market. 
(iii) A potential supply chain issue, which could delay Howdy’s sales of robotic vehicle chips by three months. Automotive is an average contributor to its profit. 
(iv) The imminent merger of Howdy’s two closest competitors, which would enable them to compete at cut-throat prices on the firm’s entire product range. 
(v) The improbable decline in sales of gaming computers’ chips after COVID, which may hit Howdy’s sales to some extent.  

(a) Appraise those five (5) different risks by plotting them on a risk matrix. (12 marks)  

Mr.  Black, the Chief Financial Officer, wants to hedge the firm’s interest rate risk in the market. He argues that a forward is significantly more effective in mitigating interest rate risk than a future. He also thinks that a forward is more transparent and cheaper than a future.  

(b) Indicate whether you agree with each of the assertions of Mr. Black. (8 marks)

Mrs. Pink, the Chief Communications Officer, has to provide an assessment of Howdy’s current competitive position and exposure to macro-risks.

(c) Distinguish and appraise exactly two (2) opportunities and two (2) threats for Howdy’s GPU business in today’s environment.  (12 marks)  

(d) Assign the four items you identified in question c) to a relevant macro-risk by using the PESTEL framework.  (8 marks)

FIN382 Question 2  

A firm holds a bond with a value of $250 million and an estimated probability of default of 3% over the coming 12 months. The policy of the firm sets its risk limit to 95% VaR (Value at Risk) and 95% ES (expected shortfall) for any individual security. Assume the bond bears no risk of loss due to changes in the market price or in the traded value.

(a) Categorise the exact class of risk to which the bond is exposed here. (3 marks)  
(b) Compute the 95% VaR measure for this bond and explain your result.  (7 marks)  
(c) Compute the 95% ES measure for this bond and explain your result. (10 marks)   
(d) Assume now that the confidence level is increased to 99% on both limits. Compute the new VaR and ES measures and explain your results. (5 marks)

FIN382 Question 3   

You review the trade loan portfolio of a Singapore-based bank. The purpose of your analysis is to establish the capital adequacy of the institution and its ability to withstand a major crisis.  

The trade loan exposure of the bank is reported at $30,000 million. The probability of default over the next year is estimated at 0.35% and the probability of default over the next 3 years is estimated at 4%. The estimated recovery value in case of default is 55% before any insurance against default is taken by the lender. 30% of the portfolio is covered by a completely risk-free insurance firm.  

(a) Compute the expected loss of the bank’s trade portfolio.  (15 marks)  

The risk-weight of the trade loan portfolio is 35%. Aside from the trade portfolio, the bank has $65,000 million of RWA over its corporate and investment banking business unit and lesser portfolios. The bank's common equity is $9 billion. The bank has issued $1 billion in eligible preferred stocks and another $0.8 billion in contingent convertibles. The bank has finally $2 billion in subordinated debt, half of which qualifies for capital recognition.  

(b) Compute the % total capital ratio of the bank, differentiate the different tiers, and appraise whether the financial institution is adequately capitalised. (15 marks)  

You read about the challenged economic outlook for Singapore in 2023. The bank expects its trade book size to contract by 3.00%. The first-year probability of default is forecast to rise to 0.55%.   

(c) Determine the total $ change in the bank’s trade portfolio expected loss.  Conclude whether the risk has increased or decreased. (5 marks)