Financial Decision

4285 words 18 pages
Contents

1) Find the distribution and report the mean and the standard deviation of the uncertain revenue in $ 1

2) What is the probability that this revenue will exceed $ 2,250,000? 1

3) What is the probability that this revenue will exceed $ 2,500,000? 1

4) What is the probability that this revenue will be less than $ 2,150,000? 1

5) What is the probability that this revenue will be less than $ 2,000,000? 1

6) HSBC offers to pay a sure sum of $2,150,000 in return for the revenue in local currencies. What do you think, is this a good offer for Corvette or not? 2

7) In Corvette, the Sales manager is willing to accept HSBC’s offer, but the CEO is not. Who is more risk-averse? 2

8) What other risks the
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Yes, it is certainly have difference in pay the sure sum in three months’ time and in twelve months’ time. Bank would prefer short time to be made. The short time to get returns, the lower risk the bank will bear. On the other hand, company would like to prefer longer time to be made. So that, the company could have more time to manage their liquidity and cash flow, and no need to prepare a large amount cash out in the short time.
10) Corvette has accepted HSBC’s offer. Now consider the bank’s risk, assuming the bank will convert all currencies into US dollars at the prevailing exchange rates. What is the probability that the bank will incur a loss? Then we according to the above answer, we could find that the profitable of less than the Revenue $2,150,000 that is zero, in other words, the bank can not appear a loss in the future. Then in my eyes, the probability that the bank will incur a loss that can never happen, change other words that is zero.
11) The bank defines its Value-at-Risk as the loss that occurs at the 5th percentile of the uncertain revenue (5% left tail of the distribution). What is the bank’s Value-at-Risk and what is the bank’s expected profit? Value-at- Risk (VaR) is a statistic method to be used to measure the degree of financial risk in an investment portfolio or a financial institution such as bank. (investopedia.com, Vale At Risk-VaR)

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