FINS5530 – FINANCIAL INSTITUTION MANAGEMENT
FINANCIAL INSTITUTION MANAGEMENT
Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: THEend8_
FINS5530 – FINANCIAL INSTITUTION MANAGEMENT
INSTRUCTIONS:
1. TIME ALLOWED – THIS IS A TAKE HOME EXAMINATION. TO BE RELEASED VIA MOODLE AT 8.00H
ON 21 NOVEMBER 2022. SUBMISSION DUE AT 23.59H ON 24 NOVEMBER 2022 VIA MOODLE.
2. TOTAL NUMBER OF QUESTIONS TO BE ANSWERED – 9
3. TOTAL MARKS AVAILABLE – 45 marks, worth 35% of the total marks for the course
4. MARKS AVAILABLE FOR EACH QUESTION ARE SHOWN IN THE PAPER
5. STUDENTS ARE ADVISED TO CAREFULLY READ THE EXAMINATION QUESTIONS BEFORE
ATTEMPTING TO ANSWER THE QUESTIONS
6. THIS EXAM CANNOT BE COPIED, FORWARDED, OR SHARED IN ANY WAY
7. STUDENTS ARE REMINDED OF THE UNSW RULES REGARDING ACADEMIC INTEGRITY AND
PLAGIARISM
8. THE STUDENT’S FULL NAME, zID, STUDENT’S UNSW EMAIL ADDRESS SHOULD APPEAR ON THE
UNSW BUSINESS SCHOOL ASSIGNMENT COVER (PROVIDED) TO BE USED FOR THIS EXAM
NOTES:
1. THIS EXAM IS OPEN BOOK
2. PLEASE USE THIS EXAM DOCUMENT TO COMPILE YOUR ANSWERS FOR SUBMISSION
3. UPON COMPLETION, CONVERT THE DOCUMENT INTO A PDF FILE AND SUBMIT IT VIA
THE LINK PROVIDED IN THE ASSESSMENTS SECTION OF THIS COURSE’S MOODLE SITE
4. PRIOR TO ATTEMPTING THE EXAM, STUDENTS MUST READ THE STUDENT
DECLARATION
5. THERE IS NO WORD LIMIT BUT BREVITY AND A PROFESSIONAL PRESENTATION ARE
EXPECTED
Page 2
Question 1. Market Risk
Refer to the following materials accompanying the Case “Implementing Quantitative Risk Management
and VaR at a Chinese Investment Bank” covered in Lecture 5:
• Case_Implementing VaR at a Chinese Investment Bank
• Spreadsheet accompanying VaR in Chinese Investment Bank Case
Using the spreadsheet provided, run backtests of the VaR predictions against actual daily gains or losses
for both the S&P500 Index and the Shanghai Composite Index.
1.1. Based on varying lookback periods of 2, 3, 6, 9, 10 and 12 months, fill in the table below as
appropriate [2 marks]:
Table: Percentage of Exceptions | Total Back Test Fails
Months in lookback 2 3 6 9 10 12
S&P 500 Index
Shanghai Index
Note: insert Percentage of Exceptions and Total Back Test Fails in each cell
separated by a comma
Compare and comment on the number of exceptions for both the S&P500 Index and the
Shanghai Composite Index. From your comparison, is it reasonable to use the VaR model for the
Chinese market compared to the US market? [3 marks]
1.2. VaR is based on an assumption of normality. Discuss what you consider to be the main benefit
and main drawback of this assumption when modelling volatility. [5 marks]
1.3. From the spreadsheet, calculate the average of the losses beyond VaR whenever exceptions
occur. Compare and comment on the average of losses beyond VaR for the S&P500 Index and
the Shanghai Composite Index. On the basis of your comparison, what is your opinion on the
suitability of VaR for the Chinese market. Do you agree or disagree with the following statement:
“VaR indicates the loss size that will only be exceeded 5% of the time in this case but says nothing
about how big the loss might be when the VaR threshold is actually exceeded.”?
Justify your answer with reference to data from the spreadsheet. [5 marks]
Page 3
Question 2. Operational and Technological Risk
2.1. What is your view on what the bank of the future may look like? Briefly describe the
distinguishing features of its activities compared to ‘traditional’ banks. [5 marks]
2.2. Based on the nature of the bank of the future’s activities that you have portrayed above, identify
and describe the risks the bank is likely to face compared to ‘traditional’ banks. Your answer
should differentiate between ‘traditional’ and ‘emerging risks’. [5 marks]
2.3. Under the Basel III finalisation, the Basel Committee has eschewed the Advanced Management
Approach for operational and technology risk management. Briefly discuss the main reason for
this change. [5 marks]
Page 4
Question 3. Capital management
The table below is based on the annual financial statements of four major banks in Australia,
ANZ Bank (ANZ), Commonwealth Bank of Australia (CBA), National Australia Bank (NAB) and
Westpac Banking Corporation (WBC).
3.1. Based on your own research, why have some major Australian banks been engaging in share
buybacks in the past year? Your answer should explain the meaning of share buybacks and
outline their rationale in terms of capital adequacy and bank profitability. [5 marks]
3.2. Visit the websites of these banks and access the 2021 financial statements for each bank.
Report the dollar values of the following for FY21:
Common Equity Tier 1 (%)
Tier 1 Capital (%)
Tier 2 Capital (%)
Looking at the figures you have provided and the table above, rank the banks from 1 (most
likely) to 4 (least likely) in terms of your assessment of the banks being in a position to engage
in a share buy-bank in 2022. Justify your reasoning based on your understanding of Basel III
capital adequacy requirements. [5 marks]
3.3. You are having a discussion with your classmates and one of them makes the following
observation. “In the corporate finance studies we learnt that credit risk is measured by the
leverage ratio. Why then do we bother in this course to use risk-adjusted capital measure
instead of the leverage ratio?” Respond, fully justifying your answer with example(s). [5 marks]
ENDS
Detailed Marking Criteria
Criteria
Below Expectations
<50% (Fail)
Meets Expectations
50% - 74% (Pass-Credit)
Exceeds Expectations
≥ 75% (Distinction-HD)
Depth and
comprehensiveness
of the risk topic
analysis
• Demonstrates poor understanding of the implication
and management of the risk topics. Does not
properly identify the relevant risk topics based on
information from the case documents and course
materials. Fails to adequately explain arguments
using supportive evidence. Provides limited
explanation to models used.
• Demonstrates understanding of the implication
and management of the risk. Properly uses the
information from the case documents and
course materials. Describes the assumptions and
methodology used. Explain arguments using
supportive evidence.
• Demonstrates in-depth understanding of the
implication and management of the risk. Makes
good use of the information from the case
documents and course materials. Clearly
describes the assumptions and methodology
used. Adequately explains arguments using
supportive evidence. Critically assesses the
limitations of the arguments made.
Communicates
clearly and concisely
• Does not express aim, key ideas and information
clearly and precisely, e.g.
- Does not adapt language for written context,
audience, and purpose; does not use own words
or explain terminology or concepts if necessary
- Uses inaccurate vocabulary/grammar, often
making meaning unclear.
• Generally expresses aim, ideas and information
clearly and precisely, e.g.
- Adapts language for written context,
audience, and purpose; uses own words and
explains terminology/concepts if necessary
- Uses sufficiently accurate vocabulary/
grammar for meaning to be generally clear
but this could be more consistent or effective.
• Expresses aim, all ideas and information clearly,
precisely, and concisely, e.g.:
- Adapts language effectively for written
context, audience, and purpose; uses own
words and explains terminology/concepts as
appropriate
- Uses accurate vocabulary and grammar (or
has only minor errors which do not interfere
with audience’s understanding)
- Uses language effectively to reinforce
message.
Structures answers
logically and
coherently
• Does not structure material logically or make a
coherent overall statement to achieve aim, e.g.:
- Each paragraph does not have a clear focus;
ideas are difficult to follow; may include
irrelevant material or go off track
- Answer is not structured clearly to address all
questions asked, e.g. do not address all
questions and tasks; inadequate introductory
and/or concluding remarks; parts are loosely
linked or mixed together.
• Generally structures key material logically to
make a coherent overall statement and largely
achieve aim, e.g.:
- Each paragraph has a mainly clear focus, with
little/no irrelevant material; readers can
follow development of main ideas
- Report is structured adequately to reinforce
key points and achieve aim, e.g. all questions
and tasks are addressed properly;
introductory and/or concluding remarks;
parts are developed and linked.
• Structures all material logically and persuasively
in a well-structured report to achieve aim e.g.:
- Each paragraph has a clear focus, with no
irrelevant or repetitive material, and a
logical sequence so that readers can follow
ideas
- Answer is structured clearly to reinforce key
ideas and distinguish from supporting
details, e.g. all questions and tasks are
addressed adequately; introduction clearly
defines aim; parts are well-developed and
clearly linked; concluding remarks reinforce
key message.