Assessment Brief
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Programme:
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BSc (Hons) Finance and Investment Management
BA (Hons) International Banking and Finance (Top-up)
BA (Hons) Business and Finance (Top-up)
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Module Code:
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AF6036
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Module Title:
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Risk in Financial Institutions I
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Submission Time and Date:
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16th January 2025 by 23:59pm GMT
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Word Limit:
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2500 words
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Weighting
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This assignment accounts for 80% of the total mark for this module
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Instructions on Assessment
This assignment accounts for 80% of the overall mark for the module. You must attempt all the parts to meet the learning outcomes.
· Length maximum of 2,500 words (with a tolerance level of 10%), which must be stated at the cover page of the assignment.
· Quotations of more than 2 lines must be indented and in italics with the reference and page number stated. Shorter quotations should be in italics but do not need to be indented.
· Tables and diagrams should be inserted at an appropriate point in the text and should be easily readable.
· All the results, their interpretation and discussion should be provided in a single MS Word document.
A. Market Risk
In this section of your report, you are required to analyse the market risk of a portfolio. Your portfolio should consist of an equally weighted portfolio a minimum of four real-world companies and the length of your sample period should be no longer than five years and must end on 30th October 2024.
You are required to complete the following tasks.
1. Estimate your portfolio's market risk using Value at Risk (VaR) techniques and Expected Shortfall at 1-year time horizon. Interpret and evaluate the output undergirded by relevant literature. (25 marks)
2. Perform. a stress test on your portfolio for at least two extreme scenarios. Based on your analysis, propose market risk management strategies for your portfolio. (10 marks)
B. Credit Risk
You are required to analyse a portfolio of loans consisting of three companies of your choice. In your report, you should clearly state the composition of your portfolio (i.e., fill in the table above with the names of four real-world companies). All computations must be carried out according to such characteristics.
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Loan
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Company Name
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Time to Maturity
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Repayment Value at Maturity $m
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Annual Interest
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Credit Rating
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1
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Company 1
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2
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Company 2
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3
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Company 3
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Assume that the loans are senior unsecured debt denominated in US dollars and that the analysis was conducted on 31st October 2024. Clearly state any assumptions you make in your estimations.
1. Calculate the Expected Default Frequency (EDF) for the above loans using KMV and compute the future value of loans and the portfolio in the default and no-default scenarios. Interpret the output from a risk management and regulatory point of view, supporting your claims with relevant literature. (25 marks)
2. Compare the CreditRisk+ and Expected Loss at Maturity risk measurement techniques. Using related literature, evaluate the strengths and shortcomings of the two techniques. (20 marks)
C. Liquidity Risk
1. Critically evaluate the liquidity risk of a systemically important bank of your choice using at least two measurement tools. Compare the results and provide recommendations to manage the risk. (20 marks)
Module-Specific Marking Criteria
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0 – 29%
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30 – 39%
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40 – 49%
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50 – 59%
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60 – 69%
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70 – 79%
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80 – 90%
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90 – 100%
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Part A:
Market Risk (35%)
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Very weak, research and understanding of VaR/ES analysis and market risk management strategies.
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Insufficient research and understanding of the VaR/ES analysis and market risk management strategies.
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Reasonable research and understanding of the VaR/ES analysis and market risk management strategies, with an attempt to illustrate real world numerical examples.
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Good research and understanding of the VaR/ES analysis and market risk management strategies by using real world data. Good knowledge of new developments and good related examples.
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Very Good research and understanding of the VaR/ES analysis and market risk management strategies by using real world data. Very good knowledge of new developments and very good, related examples.
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Excellent research and understanding of the VaR/ES analysis and market risk management strategies by using real world data. Excellent knowledge of new developments and excellent related examples.
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Outstanding research and understanding of the VaR/ES analysis and market risk management strategies by using real world data. Outstanding knowledge of new developments and Outstanding related examples.
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Exemplary, sophisticated and highly detailed VaR/ES analysis and understanding of market risk management strategies by using real world data. Exemplary knowledge of new developments and Outstanding related examples.
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Part B:
Credit Risk (45%)
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Very poor research and understanding of KMV risk measurement approach and interpretation of output from risk management and regulatory perspective, and discussion of CreditRisk+ and ELM models.
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Insufficient research and understanding of KMV risk measurement approach and interpretation of output from risk management and regulatory perspective, and discussion of CreditRisk+ and ELM models.
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Reasonable research and understanding of KMV risk measurement approach and interpretation of output from risk management and regulatory perspective, and discussion of CreditRisk+ and ELM models.
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Good research and understanding of KMV risk measurement approach and interpretation of output from risk management and regulatory perspective, and discussion of CreditRisk+ and ELM models.
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Very Good research and understanding of KMV risk measurement approach and interpretation of output from risk management and regulatory perspective, and discussion of CreditRisk+ and ELM models.
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Excellent research and understanding of KMV risk measurement approach and interpretation of output from risk management and regulatory perspective, and discussion of CreditRisk+ and ELM models.
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Outstanding research and understanding of KMV risk measurement approach and interpretation of output from risk management and regulatory perspective, and discussion of CreditRisk+ and ELM models.
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Exemplary, sophisticated and highly detailed research and understanding of KMV risk measurement approach and interpretation of output from risk management and regulatory perspective, and discussion of CreditRisk+ and ELM models.
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Part C:
Liquidity Risk (20%)
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Very poor research and understanding of a financial institution’s liquidity risk measurement, interpretation of output, and risk mitigation strategies.
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Insufficient research and understanding of a financial institution’s liquidity risk measurement, interpretation of output, and risk mitigation strategies.
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Reasonable research and understanding of a financial institution’s liquidity risk measurement, interpretation of output, and risk mitigation strategies.
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Good research and understanding of a financial institution’s liquidity risk measurement, interpretation of output, and risk mitigation strategies.
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Very Good research and understanding of a financial institution’s liquidity risk measurement, interpretation of output, and risk mitigation strategies.
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Excellent research and understanding of a financial institution’s liquidity risk measurement, interpretation of output, and risk mitigation strategies.
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Outstanding research and understanding of a financial institution’s liquidity risk measurement, interpretation of output, and risk mitigation strategies.
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Exemplary, sophisticated and highly detailed research and understanding of a financial institution’s liquidity risk measurement, interpretation of output, and risk mitigation strategies.
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Mapping to Programme Goals and Objectives
Programme (Level) Learning Outcomes that this module contributes to:
Knowledge & Understanding (KU):
· Appraise knowledge of contemporary professional practice in business and management informed by theory and research (PLO1).
· Appraise knowledge of business and management to complex problems in or related to professional practice in order to identify justifiable, sustainable and responsible solutions (PLO2).
Intellectual / Professional skills & abilities (IPSA):
· Evaluate effective interpersonal communication skills and the ability to work in multi-cultural teams (PLO3).
Personal Values Attributes (PVA):
· Critique creative and critical thinking skills that involve independence, understanding, justification and the ability to challenge the thinking of self and others (PLO4).
Module-Specific Assessment Criteria
Knowledge & Understanding (KU):
· Develop a knowledge and understanding of capital risk in financial institutions arising from credit, market and liquidity risk. (MLO1)
· Critically evaluate measurement models and management issues in the context of the regulatory requirements within the banking and finance sector. (MLO2)
Intellectual / Professional skills & abilities (IPSA):
· Develop quantitative and qualitative evaluation skills whilst measuring and managing the risks covered in this module. (MLO3)
· Develop an ability to apply regulatory requirements to real-life banking and financial institution scenarios (MLO4)
Personal Values Attributes (PVA):
· Develop an awareness of the risks facing international financial markets and how management can be equipped with knowledge and expertise to implement stronger organisational controls to address risks. (MLO5)
Assessment Regulations
Please read the guidance for students regarding assessment policies. They are available online here.
Late submission of work
After the published hand-in deadline, the following penalties will apply where coursework is submitted without approval.
For coursework submitted up to 1 working day (24 hours) after the published hand-in deadline without approval, 10% of the total marks available for the assessment shall be deducted from the assessment mark.
Coursework submitted more than one working day (24 hours) after the published hand-in deadline without approval will be regarded as not having been completed. A zero mark will be awarded for the assessment.
The full policy can be found here.
Word limits and penalties
No penalty will apply if the assignment is within +10% of the stated word limit. The word count should be declared on your assignment's front page and cover sheet. The word count does not include appendices, glossary, footnotes, tables, figures and charts.
Please note that in-text citations [e.g. (Smith, 2022)] and direct secondary quotations [e.g., "dib-dab nonsense analysis" (Smith, 2022 p.123)] are INCLUDED in the word count.
The full policy is available here.