FINANCIAL RISK MANAGEMENT ASSIGNMENT ONE QUESTION ONE Risk in the widest sense is not new to business. All companies are exposed to traditional business risks: earnings go up and down as a result of such things as changes in the business environment, in the nature of competition, in production technologies, and in factors affecting suppliers. The issue of risk has captured considerable attention from corporate management in recent years, as financial risk management has become a critical corporate activity. Regulators have also responded with new legislation, regulations, and practices that seek to improve corporate governance standards. Required: (a) Some in the academic world contend that corporate risk management is a zero sum game. Discuss. (15 Marks) (b) Risk management is not about elimination of risk, Discuss. (10 Marks) QUESTION TWO Consider a two-period binomial model in which a stock currently trades at a price of K65. The stock price can go up 20 percent or down 17 percent each period. The risk-free rate is 5 percent. (i) Calculate the price of a put option expiring in two periods with an exercise price of K60. (ii) Calculate the price of a call option expiring in two periods with an exercise price K70. (20 Marks) of