Denica Koycheva,Zhen Jin, Sengdeune Khammoungkhoune
Chapter 22: Financial Innovation: Achievements and Prospects
1. What are Miller’s counterarguments in his defense of financial
innovation against the arguments that the new financial
instruments have increased volatility in the financial markets?
2. Do you agree with Millers forecast of the financial innovation in
the future specifically between electronic and floor trading?
Chapter 23: Managing Financial Risk
1. How can companies identify and measure financial risks? How
effective have these measures been? What do the authors stress
as the shortcomings and advantages of these measures?
2. What are the differences between the duration and gap analysis?
3. What do you think is the best, most effective measure to be
considered? And why?
4. What are the flow and stock measures? What are their practical
uses and shortcomings? Which do you think is a better measure
5. What are off-balance sheet instruments?
6. Compare the following: - forwards and futures; forwards and
swaps; futures and swaps. Compare and discuss their uses as
Chapter 24: Rethinking Risk Management
1. Does a small commercial bank have comparative advantages in
taking positions at foreign exchange tradings?
2. What is VAR? What are its limitations?
3. How do management incentives influence corporate risk taking?
4. What is the relationship between risk management and capital
structure (and ownership structure)?
Chapter 25: Theory of Risk Capital in Financial Firms
1. What are the three distinguishing features of principal financial
2. Does the form of financing of net assets affect the amount of risk
3. What are the economic costs of a firm’s risk capital?
4. Why is the full allocation of risk capital across the individual
businesses of a multi-business firm generally not feasible?
CHAPTER 26 : Corporate Insurance Strategy
1. What is the conventional (“textbook”) practice of large companies
regarding their insurance?
2. Why do individuals and companies use insurance?
3. What are some important characteristics of the insurance markets
for small losses and large losses?
4. What is British Petroleum?
5. How does the new approach of BP in its insurance practice differ
from the conventional approach?
CHAPTER 27:Value at Risk: Uses and Abuses
1. What is VAR?
2. How is VAR implemented and used?
3. Examine value risk management vs. cash flow risk management,
and total risk management vs. selective risk management.
4. What were the reasons for the great derivative disasters and why
VAR couldn’t have prevented them?
5. Which are the alternatives to VAR?