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FIN369e Financial Risk Management Assignment 2 – Group-based Assignment Group-based Assignment

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Prof. Onafowokan Oluyombo

financial risk management assignment

Thorvald Grung Moe

Muhammad Zubair Syed

Risk management has become one among the important aspects in the banking industry. The importance of risk management arises due to the fact that the success, expansion and diversification of banking business is completely dependent on it. Many research papers have found that failure in management of risks could adversely impact on the financial performance of banking and other financial institutions. In order to understand more about the research area, the researcher of this study aimed to study on the relation between risk management strategies used by commercial banks in UAE and its impact on their financial performance. The study was done by taking the case study of Commercial Bank of Dubai (CBD). The researcher applied positivism philosophy in this study. The data collection was planned using deductive approach and collected through secondary data collection method. It was the explanatory research design used by the researcher and the non-probability sampling method was applied during sample selection. The researcher used criterion sampling technique to gather requisite data and the data was analysed using case study method. The study found that CBD faced mainly four types of issues namely liquidity, market, operational and credit risks and these risks were manged by various committees in the organisation. CBD also had own framework to manage various risks. The study found that risk management strategies of commercial banks had direct relation with its financial performance. Except credit risks, all other risks were properly managed by CBD. The incapacity of credit risk management had adversely impacted on profitability variables of the bank. On the basis of the findings, necessary recommendations have been made by the researcher at the end of this study.

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The paper describes the analysis of the bank failures phenomenon in Africa with a deep analysis of Zimbabwe scenario. The paper is based on historical research design which used analytical and comparative research approaches to study the bank failures phenomenon. To obtain the historical evidence the researcher consulted primary sources, secondary sources and running records. It was discovered and concluded that the failing of banks was attributed to liquidity and solvency problems as a result of flawed corporate governance standards, inadequate risk management, high levels of non- performing loans and speculative activities among a confluence of factors. It was therefore recommended that enterprise-wide risk management framework should be implemented without failing and adoption of Basel II/III on banking supervision and surveillance.

Review of International Political Economy

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While regulators around the world look to fight shadow banking, many lenders can profit from it. In our recent report, Playing the Shadowy World of Emerging Market Shadow Banking, IEMS Senior Research Fellow Dr. Bryane Michael describes how family and institutional lenders can take advantage of shadow banking opportunities in emerging markets.

I find out the thesis by YANG WANG. I want to share it to provide more information on credit risk management

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A Step-by-Step Guide: Writing an Assignment on Risk and Return

Laura Johnson

Risk and return are important concepts you'll encounter when studying finance. For making informed investment decisions and managing financial portfolios, it is essential to comprehend the relationship between risk and return. Your professor has given you the task of writing an assignment on risk and returns to show that you understand this idea. We will walk you through the steps of creating an effective finance assignment on this subject in this blog post. Writing an assignment on risk and return necessitates having a firm grasp of the subject and the capacity to apply ideas to practical situations. You must discuss various forms of risk, look into the risk-return tradeoff, and define risk and return in the context of finance. You also need to analyze risk and return about investments. Your assignment must measure risk and return, comprehend diversification and portfolio theory, and include case studies and examples. By adhering to these recommendations and effectively organizing your assignment, you can show off your financial knowledge and analytical prowess while also giving your readers insightful information.

Risk and Return in Finance Assignment

Understanding the Basics of Risk and Return

It is essential to have a firm grasp of the fundamentals of risk and return before starting to write your assignment. With this information, you'll be able to explain the subject of your assignment clearly and succinctly. You can build a solid foundation for your analysis by exploring the fundamental ideas of risk and return. You can better understand the meanings of risk and return by investigating them in the context of finance. Understanding the different kinds of risk that investors face and the trade-off between risk and return will help one better understand the complexities of making investment decisions. Knowing these fundamentals will better prepare you to evaluate investment opportunities' risk and return factors critically, allowing you to present an assignment that is well-informed and insightful. The following three points must be covered:

1.1 Definition of Risk and Return

It's crucial to define risk and return in the context of finance at the outset of your assignment. Risk is the possibility of financial loss or the unpredictability of investment returns. It includes elements that could affect an investment's outcome, such as market alterations, prevailing economic conditions, and uncertainties. Return, on the other hand, is an investment's earnings in terms of gains or profits. It displays the monetary returns on an investor's investment, such as dividends, interest, or capital growth. Initiating your assignment with a definition of risk and return creates a strong foundation for subsequent analysis and discussion.

1.2 Types of Risk

Exploring the various risks that investors face is crucial when discussing the relationship between risk and return. This includes market risk, which results from changes in the general state of the market. Interest rate risk is the term used to describe how changes in interest rates affect the value of investments. Credit risk is the possibility of suffering losses as a result of a borrower's inability to pay back a loan or fulfill other financial commitments. The ease with which an investment can be converted into cash without suffering a sizable loss in value is known as liquidity risk. You will emphasize the variety of factors that can affect investment outcomes by going over each type of risk in detail and giving examples.

1.3 Risk-Return Tradeoff

A key tenet of finance is the idea of the risk-return tradeoff. As you discuss this subject, be sure to emphasize that investors typically expect higher returns when they take on greater levels of risk. This trade-off implies that investments with a higher return potential frequently involve a higher level of risk. Investor preferences, time horizons, and investment goals are variables that affect this trade-off. While some investors prioritize capital preservation and choose lower-risk investments, others pursue growth and are willing to take on greater levels of risk. Understanding this tradeoff and the variables that affect it will give you important insights into how investors make decisions. Your analysis of risk and return on investments will be strengthened by looking into the risk-return tradeoff, making for a more thorough and well-rounded assignment.

Analyzing Risk and Return on Investments

Your assignment will concentrate on a more thorough examination of risk and return on investments in this section. This analysis will allow you to demonstrate how well you can put the knowledge you have acquired to use. It is crucial to examine the various metrics, including standard deviation, beta, and the Sharpe ratio, that are used to quantify risk and return. You will be able to provide a thorough evaluation of investment opportunities if you comprehend how these metrics are calculated and their importance in evaluating investment performance. You will also research how portfolio theory and diversification affect risk management. You will demonstrate your knowledge of building effective portfolios to optimize risk and return tradeoffs by addressing the ideas of diversification and Modern Portfolio Theory. By conducting this analysis, you'll demonstrate your analytical prowess and capacity to assess investment options by their risk and return profiles, giving you useful information for making wise investment choices. Focus on the following two important factors:

2.1 Measuring Risk and Return

You will describe the various metrics used to quantify risk and return on investments in this section of your assignment. Introduce yourself by going over common metrics like standard deviation, beta, and the Sharpe ratio. The standard deviation calculates the range of investment returns and gives information about how volatile or risky an investment is. The sensitivity of an investment's returns to market fluctuations is measured by beta, which identifies its systematic risk. By measuring the excess return earned per unit of assumed risk, the Sharpe ratio combines risk and return. It is calculated by taking the return on investment and deducting the risk-free rate, then dividing the result by the standard deviation. Describe the formulas used to calculate these indicators and their importance in evaluating investment performance. Investors can more effectively assess and compare the risk and return profiles of various investments by understanding these metrics.

2.2 Diversification and Portfolio Theory

You will introduce the idea of diversification and its function in risk management in this section. Explanation: To lower overall portfolio risk, diversification involves spreading investments across a variety of asset classes, such as stocks, bonds, and commodities. Investors may be able to reduce the overall portfolio's exposure to the effects of individual investment losses by diversifying their holdings. Talk about the advantages of diversification, such as the potential for more consistent returns and decreased exposure to particular risks. A framework for building effective portfolios is provided by the Modern Portfolio Theory (MPT), which you should also introduce. Describe how MPT places a strong emphasis on asset diversification as well as the best asset allocation based on risk and return expectations. Describe the value of MPT in creating portfolios that strike a balance between risk and return, and emphasize how it is used in investment decision-making. Investors can build more reliable and well-balanced investment portfolios by comprehending the idea of diversification and how it relates to portfolio theory.

Case Studies and Examples

Your assignment will be more engaging and useful if you use real-world case studies and examples. You can demonstrate your ability to apply the ideas of risk and return to particular situations by incorporating these examples. Case studies give you important context while enabling you to analyze and assess real-world situations where risk and return considerations are pertinent. You can show that you comprehend how risk and return affect investment decisions and outcomes by looking at and analyzing these real-world examples. Furthermore, case studies provide a chance to investigate the subtleties and complexities of various markets, financial products, or investment plans. The relevance and depth of your assignment are increased by the practical application of theory to practice, which also gives you the chance to demonstrate your analytical and critical thinking skills. Case studies and examples will also help your readers relate to and better understand the ideas covered in your assignment, increasing its impact and educational value. Consider the following three case studies:

3.1 Case Study: Investing in Stocks vs. Bonds

You will contrast the risk and return characteristics of investing in stocks and bonds in this case study. Analyse and offer insights into the risk-return profiles of these two asset classes using historical data. Take into account elements like volatility, past performance, and the correlation between risk and reward. When deciding between stocks and bonds, investors should take several factors into account, including their investment objectives, time horizon, risk tolerance, and market conditions. You will be able to help investors make better decisions by conducting this comparative analysis and providing insightful information about the risk and return tradeoffs related to investing in stocks and bonds.

3.2 Case Study: Evaluating Risky Investments

Analyze the risk and return characteristics of a risky investment you choose for this case study, such as a high-yield bond or an emerging market fund. Examine the elements that make it risky, such as the geopolitical context, the state of the economy, or the credit rating. Discuss the risks involved with such investments while evaluating the potential returns. Think about whether these investments fit your risk tolerance and specific investment goals. Advise on how well these investments fit an investor's goals, time frame, and risk tolerance. Analyzing this case study will show that you have the skills necessary to assess and analyze risky investment options, giving investors the information they need to make better portfolio allocation decisions.

3.3 Case Study: Risk Management in Financial Institutions

Examine the risk management procedures used by a financial institution in this case study, such as a bank or an insurance company. Examine the methods used by these institutions to recognize, quantify, and reduce risks. Examine the risk management process's frameworks, models, and tools. Describe how maintaining financial stability and the institution's overall health depends on effective risk management. Analyse specific instances of risk management techniques, such as stress testing, hedging, and diversification. Draw attention to the part that risk management and regulatory compliance play in financial institutions' risk management. You will learn about the intricate procedures and methods involved in risk mitigation by studying risk management in financial institutions, which will help you understand the significance of risk management in the financial industry better.

In summary, writing an assignment on risk and return requires a thorough understanding of the subject as well as the ability to apply ideas to practical situations. By following the format previously provided, you can create a thorough and instructive assignment that showcases your knowledge of finance and analytical skills. It is critical to provide concise justifications, use relevant examples, and support your claims with solid evidence and research. By following these instructions, you'll be able to present a well-written assignment that demonstrates how well you understand risk and return. Don't forget to pay attention to the little things, double-check your work, and make sure your assignment is coherent and cohesive. You can produce a strong piece of writing that impresses your professor and advances your academic career with hard work and dedication. Good luck with your assignment, everyone!

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Financial Risk Management

By controlling a company’s exposure to financial risk, particularly operational risk, credit risk, and market risk, among other more specialized variants not listed here, financial risk management is the practice of preserving an organization’s economic value. Regarding risk management in general, financial risk management entails locating risk sources, assessing them, and developing plans to deal with them.

The process of identifying, evaluating, and mitigating potential risks that could have a negative impact on an organization’s financial health is known as financial risk management. It’s essential to managing a business or investment portfolio because it helps guard against unforeseen circumstances that might result in monetary losses. Here are some essential ideas and tactics for managing financial risk:

Types of Financial Risks:

  • Market Risk: Arises from changes in market prices, such as interest rates, exchange rates, and commodity prices.
  • Credit Risk: The risk that a borrower or counterparty will fail to fulfill their financial obligations.
  • Liquidity Risk: The risk of not being able to buy or sell assets quickly without significantly affecting their prices.
  • Operational Risk: Arises from internal processes, systems, and human errors that can result in financial losses.
  • Reputation Risk: The potential for negative public perception that could harm a company’s brand and financial standing.

Risk Management Strategies:

  • Risk Identification: Identify and assess potential risks that could impact the organization’s financial stability.
  • Risk Assessment: Evaluate the likelihood and potential impact of each risk on the organization’s financial objectives.
  • Risk Mitigation: Implement strategies to reduce or eliminate risks. This could involve diversification, hedging, and setting risk limits.
  • Risk Transfer: Transfer the risk to another party, such as through insurance or financial derivatives.
  • Risk Avoidance: Refrain from engaging in activities that carry high levels of risk.
  • Risk Monitoring and Review: Continuously monitor the financial environment and update risk management strategies as needed.

Tools and Techniques :

  • Diversification: Spreading investments across different assets to reduce the impact of a single asset’s poor performance.
  • Hedging: Using financial derivatives like options and futures to offset potential losses due to price fluctuations.
  • Value at Risk (VaR): A statistical measure used to quantify the potential loss an investment or portfolio might face over a specific time horizon at a given confidence level.
  • Stress Testing: Simulating extreme market conditions to assess how well an investment or portfolio would perform in adverse scenarios.
  • Scenario Analysis: Evaluating the impact of various scenarios on an investment or portfolio’s value.
  • Credit Scoring Models: Assessing the creditworthiness of borrowers based on various financial and non-financial factors.

Importance of Financial Risk Management:

  • Preservation of Capital: Preventing significant financial losses that could impair the organization’s financial health.
  • Stability: Enhancing the stability and predictability of financial outcomes.
  • Regulatory Compliance: Meeting regulatory requirements related to risk management and reporting.
  • Investor Confidence: Demonstrating responsible risk management practices to attract and retain investors.

Overall, effective financial risk management involves a combination of thorough analysis, strategic planning, and proactive decision-making to ensure the long-term financial health of an organization or investment portfolio.

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  • Overview of global financial markets
  • Life cycle of financial risk management
  • Risk measurement by financial institutions and corporates
  • Statistical techniques for financial risk analysis and quantification
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financial risk management assignment

Assignments: Financial Risk Management

ASSIGNMENTS: FINANCIAL RISK MANAGEMENT

financial risk management assignment

Bank  Capital Regulations (MS 2018)

Instructions:

Upload your summary to Turnitin using the following credentials:

Class ID           = 19249441

Enrollment key = msims2019

Duration Exercises - Home Assignment Submit Here

Interest Rate Risk - Home Assignment Submit Here

CASE STUDIES  PAGE

Various assignments have been designed for different classes with differing objectives. These assignments aim at testing of and building upon concepts that are covered in the financial risk management classes. The following four assignments are given with different variations from time to time. Please keep visiting the class Notice Board for further instructions.

financial risk management assignment

ASSIGNMENT 1METALLGESSESCHAFT CASE STUDY: The assignment must have at least 2000 words. Marks will be assigned on the basis of strong arguments and fulfillment of other criteria such as timely submission, avoidance of plagiarism, and originality of your answers. The following four question are be answered. Q1. Was the marketing strategy of the company successful?

Q2. Was the Stack-and-Roll strategy of the company good enough? What other hedging options the company could have used?

Q3. The board of directors' decision to terminate the long-term forward contracts with customers' was a good or a bad decision? What would you suggest?

Q4. Can derivative contracts be blamed for the losses of the company? Should government restrict the use of derivative contracts? Justify your answer?

financial risk management assignment

ASSIGNMENT 2HEDGING WITH FUTURES:

This assignment has two parts: 

PART I (4 marks)

Due date = Sep 21, 2015 [MBA 2015]

Due date = Sep 21, 2015 [MSc. Finance]

Note: The assignment has to be submitted to dropbox using the theese links. 

MSc Finance Submit Hedge Ratio Asg. Here

MBA 2015 - Submit Hedge Ratio Asg. Here

You are supposed to: 

1. Collect consecutive six months spot and future share prices data of the assigned companies [ Download MSc Finance]. [ Download MBA 1.5]

2. Find the hedge ratio between spot and future prices

3. Assume that you have a long position of 3000 shares in the assigned company, then find the number of future contracts (N) to hedge your position

4. Tell whether short-selling or taking a long-position will hedge your existing position

5. Calculate profit or loss right after the six months period (the period which you have used for calculating the hedge ratio)

6. Tell whether your position is fully hedged or not based on the findings in step 5

PART II (4 marks)

Write essays of about 500-1000 words on each of the followings:

1. Highlight different aspects of future contracts on KSE, such as their rules, eligible scripts, settlement process, short-selling, margin requirements, etc.

2. Write an essay on Pakistan Mercantile Exchange Ltd., which commodities are traded on it, how to trade on it, its rules for trading and settlement, who is eligible to trade on it, etc.

3. Suppose a contractor get a project from local government. The contract price is Rs. 5000.0000, that cannot be changed later on. The contractor is required to complete the project in next 2 years. Highlight any price risk that the contractor faces in this contract? How the contractor can hedge this risk?

4. Identify major risk in any 3 industries of Pakistan. How these risk can be hedged? List of industries can be downloaded from here

financial risk management assignment

ASSIGNMENT 3RISK MANAGEMENT PRACTICES IN PAKISTANI BANKS: Summarize risk positions (exposures) and risk management practices of the assigned bank in the last 3 years covering the following points. Also, give definitions of the following points from the bank’s annual reports, website, or other documents (using your own wordings). A. Risk Management Responsibility a. Risk Responsibilities (who is responsible for creating risk framework and implementation of the same)

b. Risk Management Group Organization

B.  CREDIT RISK

a.   Sovereign Credit Risk

b.   Non-Sovereign Credit Risk

c.   Counter Party Credit Risk on Interbank Limits

d.   Country Risk

e.   Credit Administration

f.    Portfolio Risk Measurement Models

g.   Early Warning System

h.   Management of Non Performing Loans

i.     Portfolio Diversification

C.  MARKET RISK

a.   Risk Pertaining to Trading Book

      i.    interest Rate Risk - Trading Book

      ii.    Equity Position Risk –

             1.   Equity price risk

             2.   Concentration risk

      iii.    Duration GAP Analysis (having implication for market risk)

b.   Market Risk Capital Charge in each of the three years for the above

c.   Market risk arising from Foreign Exchange Risk

D.  LIQUIDITY RISK

a.   Maturities of Assets and Liabilities

E.  OPERATIONAL RISK

F.   Off-balance exposures:

a.   Letter of credit (all types, their definitions and their implication for risk/exposures/risk management)

b.   Letter of guarantee

ASSIGNMENT 4

VOLATILITY & VALUE AT RISK CALCULATIONS

financial risk management assignment

INSTRUCTIONS:

1.       The assignment must be done in MS-Excel and submitted [Msc Finance here and MBA here ] no later than Jan 8, 2017. The email subject should be in this format: Student Names -VOLATILITY ASSIGNMENT , and the file name should in this format  Student - VOLATILITY ASSIGNMENT. IF you do not follow these instructions, you assignment will not be recognized by my email filter and may land anywhere in clutter which my email is full of.

3.       Delayed submission will cost you 0.5 marks per day

4.       All calculations and detailed steps should be shown in the Excel sheets

This assignment involves the application of concepts related to market risk models. You are required to collect daily share prices data of the assigned company for PART-I of the assignment. Minimum number of observations should be 500. Suppose that your bank has invested Rs.500,000 in the firm.

Requirements:

A: PART - I

1.       Find volatility with: 

a.        simple standard deviation assuming zero mean

b. Simple standard deviation with normal formula

c.      EWMA

2. Update volatility for 10 days after you have calculated it in the first step.        

3. Calculate VaR of the firm at 95% confidence over 5 days with parametric approach using the measure of volatility as calculated in Req.1

4.       Plot distribution of the returns using Histogram and explain whether the distribution can be called normal?

5.       Calculate VaR of the firm over 5 days with historical simulation method at 5 th percentile

Part I - Enteprise Risk Management - Skills Assignment (1)

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Financial Risk Management

  • Subject: Finance & Accounting
  • Type: Assignment
  • Level: Undergraduate
  • Pages: 7 (1750 words)
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  • Author: hstoltenberg

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financial risk management assignment

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  • NOC:Financial Derivatives & Risk Management (Video) 
  • Co-ordinated by : IIT Roorkee
  • Available from : 2019-07-25
  • Intro Video
  • Overview of Derivatives
  • Forwards: Introduction & Pricing
  • Forwards: Pricing & Arbitrage
  • Forwards Pricing: Consumption Assets
  • Futures: Introduction & Salient Features
  • Futures: Margining & MTM
  • Forwards & Futures Prices, Exposure
  • Exposure & Risk
  • Basics of Futures Hedging
  • Futures Hedging: Nuances
  • Futures Hedging: No of Contracts
  • Futures Hedging: Examples
  • Mean Variance Portfolio Theory
  • Capital Asset Pricing Model
  • Systematic & Unsystematic Risk
  • Index Futures: Basic Theory
  • Hedging with Index Futures
  • Index Futures: Arbitrage, Examples
  • Spot Interest Rates & YTM
  • YTM, Other Yield Measures
  • Interest Rate Risk
  • Duration & Price Sensitivities, Immunization
  • Interest Rate Futures: Salient Features
  • T-Bill Futures: Applications
  • T-Bill Futures: Hedging
  • T-Bill Futures: Arbitrage; Eurodollar Futures
  • Tailing the Hedge; Clean & Dirty Price
  • US T-Bond Futures: Salient Features, Pricing
  • US T-Bond Futures: Conversion Factor; Options
  • Options: Basic Theory
  • Options: Put-Call Parity
  • Options: Price Bounds, American Options
  • American Options: Properties
  • Basic Option Trading Strategies
  • Option Strategies Contd
  • Option Spread Strategies
  • Stochastic Processes: Random Walk
  • Stochastic Processes: Brownian Motion
  • Stochastic Processes: Diffusion Equation
  • Stochastic Processes: Central Limit Theorem, Stochastic Calculus
  • Stochastic Calculus: Ito’s Equation
  • Stock Price Distributions; Fokker Planck Equation & Solution
  • Lognormal Distribution
  • Option Pricing: Binomial Model, Risk Neutral Valuation
  • Option Pricing: Binomial Model Contd
  • Girsanov Theorem; Black Scholes Model
  • Black Scholes Model Contd…
  • Features of BS Model
  • Solution of BS PDE; Option Greeks
  • Option Greeks: Definition & Properties
  • Option Greeks: Further Properties
  • Option Greeks: Further Properties, Role in Trading Strategies
  • Option Greeks: Further Properties, Role in Trading Strategies Contd…
  • Option Greeks: Role in Trading Strategies Contd…; Swaps
  • Forward Rate Agreements; Swaps
  • Swaps: Theory of Swaps
  • Swaps: Valuation of Interest Rate Swaps
  • Currency Swaps; Value at Risk
  • Value at Risk: Definition & Computation
  • Value at Risk: Computation for Bond & Derivative Portfolios
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  • Assignments
  • Download Videos
  • Transcripts

IMAGES

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    Example #1. A hedge fund manager manages a portfolio of stocks, bonds, and other financial instruments for a group of investors. The fund has exposure to the market, credit, and liquidity risks. Therefore, the manager must ensure the fund's risk profile aligns with the investors' risk tolerance and objectives.

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  5. Mastering Risk and Return: A Guide for Finance Assignment

    Risk is the possibility of financial loss or the unpredictability of investment returns. It includes elements that could affect an investment's outcome, such as market alterations, prevailing economic conditions, and uncertainties. Return, on the other hand, is an investment's earnings in terms of gains or profits.

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  24. NOC:Financial Derivatives & Risk Management

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