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Suppose you are a japanese banker: is it riskier to make a loan denominated in dollars or in yen? What if you are an english banker?

PRINCIPLES OF RISK MANAGEMENT Risk and Economic Decisions 1 Suppe e pension and manager and your S100.000 payment in 3 www What would be a risk-free investment had to make that payment in 20 years in day you seed to make h. If you had to make the investment? c. What do you capel 4. Suppose you are a Japanese de vou conclude from youw en opens are a Japanese bankiersi kerto make in yen? What if you are an English anh a de l 5. You are the CEO of a Me an American bank on per dollar. You balance and interest in ons is 9.5 pesos per dollar. What for the loan? CEO of a Mexican company that a dollade r en bank one year ago when the peo-dollar exchange rate You borrowed 5100. 000 interest and promised to pay the and interest in one payment at the end of the year. The current ech ner dollar. What effective pesos en t re of inerest did you The Risk Management Process Which risk management technique has been chosen in each of the folle situations? Installing a smoke detector in your home . Investing savings in T-bills rather than in stocks Deciding not to purchase collision insurance on your car Purchasing a life insurance policy for yourself You are considering a choice between investing $1.000 in a conventional and T ill offering an interest rate of 8% and a one-year Index-Linked Intation T&hyphen:Bill offering 3% plus the rate of inflation a. Which is the safer investment? b. Which offers the higher expected return? c. What is the real return on the Index-Linked Bond 8. Suppose you are a fanatical follower or a particular major league baseball team (e.g., the Cubs) about to start playing in the World Series. You know that if your team loses again this time you will need serious psychological help and expect you will probably have to spend thousands of dollars on counseling services. Is there a way to insure against this risk? Would gambling on the World Series be categorized as speculation? The Three Dimensions of Risk Transfer 9. What dimension of risk transfer are you engaged in if you make a restaurant reservation for your party of six? Why do some restaurants refuse to take reservations? Suppose you are interested in financing your new home purchase. You have your choice of a myriad financing options. You could enter into any one of the following "Brements: 8% fixed rate for 7 venne 85fixed rate for 15 years, 9 lixed for su addition, you could finance with a 30-year variable rate that begins at creases and denne with the crime rate, or you could finance With Ju-year