ESSAY 3 – TOPIC OUTLINES

Chapter 23. Risk Management

• Why is it important? Can you relate to your workplace? Brief summary of risk management.
• Types of risk: FX risk, commodity price risk, interest rate risk, project selection risk, credit risk
• Risk management tools: better matched with the types of risk
  • Note: forwards, futures, swaps are great derivate hedging tools, but definition is enough

• Common practice, emerging type of risk, emerging management tools

Chapter 24. Bankruptcy, Reorganization, and Liquidation

• What is financial distress (one type of risk) and its potential consequences, focusing on failures
  • Try to think of the consequences as impacts on general public/ economy

• Types of bankruptcy settlements (go briefly, paying more attention to compare and contrast)
  • Formal versus informal
  • Reorganization – try to find examples
  • Liquidation – try to find examples

• Other motivations for bankruptcy – anything strategical? Check American Airlines 2011
• Bankruptcy Law (keep it short) and its limitations (critical thinking)
• Other matters such as: dot.com bubbles, too big to fail, government bailouts
  • You could even predict the upcoming bankruptcies/ bailouts from this period

Chapter 25. Portfolio Theory

• What is a portfolio? Who cares about it? How would it be important to you?
• Efficient portfolio theory: explain it in a nutshell as if you had 2’ elevator pitch
  • Skipping the technical parts (25-1a, 25-1b, 25-2) – in essay but recommend reading
  • Reiterating CAPM in one paragraph to address the concept of risk and return
  • Skipping other theories (CML, SML, APT)
  • Summarizing the implications for portfolio managers (including individuals)

• I would say rather than focusing on risk versus return (textbook), discuss more real life matters
  • Such as the impact of tax on your investment -> how to minimize tax expenses
  • Different risky assets in a diversified portfolio such as ETFs or REITs
  • What is a relatively optimal asset allocation for someone with particular investment horizon and risk tolerance, and income level

• In short, I do hope you share with others your view on personal investment