risk management

Q No 1: Consider the following information, which has three securities and three possible economic scenarios: (4) Probability Security 1 Security 2 Security 3 State of Economy Recession Stable Boom 0.20 0.50 0.30 5.0% 9.0 15.0 -3.0% 4.0 20.0 -7.0% -1.0 13.0 Calculate the expected return and standard deviation for each security. Calculate the correlation coefficient for each pair of security. b) i. If the State bank of Pakistan decides to contract the money supply to fight inflation. What will happen to the value of the US dollar? (01) ii. If nominal interest rates in America rise but real interest rates fall, predict what will happen to the US exchange rate? (01) iii. If the demand for a country's export fall at the same time that tariffs on import are raised. Will the country's currency tend to appreciate or depreciate in the long run? (01) iv. If there is a strike in France, making it harder to buy French goods, what will happen to the value of the euro? (01) V. A Country is always worse off when its currency is weak (falls in value). Is this statement true, false or uncertain. Explain your answer. (01) vi. If the Pakistani government unexpectedly announces that it will be imposing higher tariffs on foreign goods one year from now, what will happen to the value of PKR today? (01) c) What is credit risk? Describe the tools and techniques to mitigate Credit risk? (7) d) The bank customer will be going to London in March to purchase 100,000 in new inventory. The current spot and futures exchange rates are: Q No 1: Consider the following information, which has three securities and three possible economic scenarios: (4) Probability Security 1 Security 2 Security 3 State of Economy Recession Stable Boom 0.20 0.50 0.30 5.0% 9.0 15.0 -3.0% 4.0 20.0 -7.0% -1.0 13.0 Calculate the expected return and standard deviation for each security. Calculate the correlation coefficient for each pair of security. b) i. If the State bank of Pakistan decides to contract the money supply to fight inflation. What will happen to the value of the US dollar? (01) ii. If nominal interest rates in America rise but real interest rates fall, predict what will happen to the US exchange rate? (01) iii. If the demand for a country's export fall at the same time that tariffs on import are raised. Will the country's currency tend to appreciate or depreciate in the long run? (01) iv. If there is a strike in France, making it harder to buy French goods, what will happen to the value of the euro? (01) V. A Country is always worse off when its currency is weak (falls in value). Is this statement true, false or uncertain. Explain your answer. (01) vi. If the Pakistani government unexpectedly announces that it will be imposing higher tariffs on foreign goods one year from now, what will happen to the value of PKR today? (01) c) What is credit risk? Describe the tools and techniques to mitigate Credit risk? (7) d) The bank customer will be going to London in March to purchase 100,000 in new inventory. The current spot and futures exchange rates are