Task 1: You are about to take over money plays bank, a small but lucrative financial institution. You have hired new staff and are conducting orientation and training. You need to explain financial management risk to the new staff.

Prepare a report responding to the following regarding factors of financial risk:

Explain risk management to your new staff.

Distinguish between the 3 factors of financial risk as it pertains to the banking industry.

Explain each of the following: credit commodity operational risk

Task 2: Buyu manufacturing has been contracted to provide seal electronics with printed circuit and motherboards (pc) boards under the following terms:

100,000 pc boards will be delivered to seal in one month. In 3 months, seal has an option to take the delivery of an additional 100,000 boards by giving buyu a 30-day notice. Seal will pay $5 for each board it takes. Buyu manufactures the pc boards through a process called batching, and manufacturing costs are as follows:

The manufacturing batch run has a fixed setup cost of $250,000, regardless of the run size. The marginal manufacturing cost is $2.00 per board, regardless of the size of the batch run. Buyu must decide whether it should manufacture all 200,000 pc boards now, or if it should manufacture 100,000 now and the other 100,000 boards only if seal decides to buy them. If buyu manufactures 200,000 now and seal does not exercise its option, then buyu will lose the manufacturing cost of the extra 100,000 boards. Buyu believes that there is a 50% chance that seal will exercise its option to buy the additional 100,000 pc boards.

Discuss the potential profit of manufacturing all 200,000 boards now.

Draw a decision tree for the decision that buyu faces. If buyu uses its expected profit as the basis for its decision, determine the preferred course of action.

Determine the range of values of the probability that seal will exercise its option, making the decision found in part c as optimal, and determine the expected value of perfect information about whether seal will exercise its option.

Assume now that buyu is constantly risk averse with a risk tolerance of $100,000.

Answer rating: 100% (QA)

Task 1 Discuss the potential profit of manufacturing all 200000 boards now Item Revenue 2000005 1000... View the full answer