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LOS c, (Part 2): Evaluate the possible responses to a risk management problem.
Q1. Frank Meinrod is in charge of the risk management committee for Alpha Portfolio Managers. Recently, the value of one of the company’s bond positions has decreased due to a potential steep rate hike by the Federal Reserve. Meinrod believes that the rate hike will be moderate and that the decline in the bond portfolio value is temporary. Which of the following is the best action for Meinrod to take? Meinrod should advise the risk management committee that they should:
A) hedge the position by selling interest rate futures.
B) hedge the position by buying interest rate futures.
C) take no action at all.
Q2. Tom Andrews is in charge of the risk management committee for Sigma Portfolio Managers. Interest rates have recently increased and the firm’s model has predicted a substantial decline in the value of the firm’s bond portfolio. However, the actual value of the bond portfolio has not decreased as much as expected because the firm has large holdings of callable bonds. Which of the following is the best action for Andrews to take? Andrews should advise the risk management committee that they should:
A) revise the model in light of its shortcomings.
B) take no action at all.
C) hedge the position by buying a series of interest rate call options (caps).
Q3. Which of the following regarding an effective risk management model is FALSE?
A) When a risk management problem is viewed as a long-run change in fundamentals, corrective action is required.
B) When a risk management problem is viewed as temporary, the best course of action is often to take no action at all.
C) Duration and delta are sufficient for modeling the risk of bonds and options. | 
发表于 2009-4-7 18:16
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