Financial Risk Management Lecture 2 Q&A 2023 Updated

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Risk - ANS-When the future outcome could be different from what is expected What are the 2 main components of risk? - ANS-- Identification - Classification What do both components of risk lead to?... - ANS-The risk register What does standard deviation measure? - ANS-The spread of the distribution What does it mean if the standard deviation is small? - ANS-- The data is tightly clustered about the mean - The normal distribution will be taller What does it mean if the standard deviation is large? - ANS-- The data is spread about the mean - The normal distribution will be flatter and wider What does the z score indicate? - ANS-By how many standard deviations your variable is away from the mean value When working out the standard deviation for a population and sample, what is the only difference? - ANS-Population gets divided by n and a sample gets divided by n - 1 Value at Risk - ANS-A statistic that measures and quantifies the level of financial risk within a firm, portfolio or position over a specific time frame What are the 3 components of a VAR statistic? - ANS-- A time period - A confidence level - A loss amount VAR Formula - ANS-Z x sigma x value exposed to risk Sensitivity Analysis - ANS-This is where 1 key variable gets changed and then the impact it has had upon key performance indicators gets analysed What type of analysis is often useful with sensitivity analysis? - ANS-2 dimensional because it can be quite useful to see the impact of a combination of events What does sensitivity analysis show and not show?... [Show More]

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