Introduction to Risk Principles

MONASH UNIVERSITY FACULTY OF BUSINESS AND ECONOMICS DEPARTMENT OF ACCOUNTING AND FINANCE
FIRST SEMESTER, 2013

UNIT NAME: UNIT CODE:

INTRODUCTION TO RISK PRINCIPLES AFF 9020

Assignment 2
The assignment is to be submitted in both electronic and hardcopy formats as required and listed in the unit outline. Electronic format is to be emailed to Warren Gillian and the hardcopy is to be delivered to the assignment box provided on the 3rd floor of building H by due date for all students. Failure to undertake these instructions will result in your assignment not being accepted for marking or comment. This Assignment is to be carried out in accordance with the Assignment guide outlined in the course Unit Guide; failure to do so will result in loss of marks. It is to be an original work of approximately 3,000 words excluding table of contents, headings, index, footnotes, attachments and references. The assignment must demonstrate that the student has carried out extensive research and is worth 30% of your final mark. NO EXTENSIONS TO DUE DATE will be considered unless supported by medical evidence; even with this evidence the request may be declined. There will be absolutely no extensions granted for non-medical reasons. Penalties will accrue for late submission at the rate of 6 marks per day, for the first five days. Assignments received after this period will be read to provide feedback only. No assignments will be accepted for marking after this period.

Due Date: For all students the assignment is to be submitted by Tues 14th May 2013 by 5pm (Week 10). Hard copy must be postmarked same day or earlier if posted. Your assignment is to be an original piece of work, note unit outline re plagiarism. Marks: 30% of total marks for this unit.

You are required to write an essay of no more than 3000 words commenting on the following statement.
“The cycle of events leading to the GFC is regularly described as a series of very bad investment decisions, leading to serious losses, which in turn created a crisis in liquidity, triggering a global credit crisis.” Given that brand organizations like Lehman Brothers, Bear Stearns, Meryl Lynch, who are no more or AIG who were effectively nationalised, all had technically excellent risk management systems, what in your view was the role of financial engineering i.e. the use of collateralized debt products, contracts of difference and other derivative type products in this disaster? In your answer you are to consider the following issues: 1. Initially derivative products were a risk management device, so what happened? 2. The interconnectivity between operational risk, credit risk and systemic risk? 3. The role of Governance and non-regulatory compliance in risk models? 4. What role will ISO31000:2009 play, if any, as the new global standard for risk management, in creating an environment of resilience in the global economy. 30 Marks