Q 1. In 1994, one subsidiary of Daimler-Benz, Daimler-Benz Aerospace, had an order book of DM20 billion, of which 80% was fixed in US dollars. In 1995, Daimler-Benz reported losses of DM1.56 billion, the largest in the company's 109-year history. Briefly explain why Daimler-Benz failed to hedge its position [Hint: In your answer, you should refer to the primary goal of risk management as stated by Stulz (1996, Journal of Applied Corporate Finance)].

Q2. Bank of Southern America holds a $1 million position in a stock with beta=1.3. It has been estimated that over the past year, the standard deviation of the daily returns on the stock market index was 300 basis points. By assuming normality, calculate the 95% and 99% DEAR for this portfolio.