The first peril explicitly cited at the beginning of the article is a flood. As this risk is due to natural disaster, this would be classified as a static risk. Indeed, this is a risk that is not affected by the business environment, and that remain constant over time. As explained in the article, the probability that a 100-year event occurs 2 times in a row is small but not inexistent. In fact the probability that such an event occur is 1 over 100. However, it remains 1 over 100 the next year, and the year after. A flood can also be classified under the pure risk category. Due to such an event, a family can either loss their house, or not. There is no possibility of profit.
Just like for flood, hurricane would also be classified as a static …show more content…
Indeed, global companies that make business in several countries are daily exposed to interest rate risks. To manage this risk, companies first have to make forecast and plan what their revenues without this risk might be. Second, they have to implement different strategies to avoid this risk. The first solution a company can implement is to negotiate new contracts, and renegotiate former ones on the local currency. The firm can also use currency swaps to manage the risk, and/or forward contract to lessen the impact of the change in interest rate on the business. When I was working at NBCUniversal in London, most of the revenues reported by European office were in Euro. When the USD appreciated from EUR=1.36USD to EUR=1.04USD, the Investing team of the company has massively invested in forward contracts and FX options in order to cover the loss in revenues caused by the depreciation of the Euro.
3. Wizard of Odds
a.
Subjective risk is the perceived amount of risks based on each individual’s opinions. According to the article, if we can calculate risks, such as the amount of risks to be bitten by a shark, this is much more difficult to calculate subjective risks.
b.
As explained in the article, subjective risk is the individual perception of the risk, and can be driven by the social and psychological state of the individual as well as its previous experiences. Indeed, subjective risks are highly driven …show more content…
Objective risks differ principally to subjective risks by the fact that there is no personal bias in the calculation of the probability that the risk can occur. Objective risks are not driven by one individual experience or state of mind, and can be mathematically calculated.
d. An example of subjective risk
One person decides to bet on the winner of the next soccer champion in the English championship. As there are 20 teams in the league, the probability that one team wins the championship is mathematically 1 over 20. However, the fan who bets on a specific winner may be biased based on the previous results the team had the previous seasons, his perception of the new players who are joining the team, or simply by his love, or passion for the team. He might then see his bet as less, or more
Just like for flood, hurricane would also be classified as a static …show more content…
Indeed, global companies that make business in several countries are daily exposed to interest rate risks. To manage this risk, companies first have to make forecast and plan what their revenues without this risk might be. Second, they have to implement different strategies to avoid this risk. The first solution a company can implement is to negotiate new contracts, and renegotiate former ones on the local currency. The firm can also use currency swaps to manage the risk, and/or forward contract to lessen the impact of the change in interest rate on the business. When I was working at NBCUniversal in London, most of the revenues reported by European office were in Euro. When the USD appreciated from EUR=1.36USD to EUR=1.04USD, the Investing team of the company has massively invested in forward contracts and FX options in order to cover the loss in revenues caused by the depreciation of the Euro.
3. Wizard of Odds
a.
Subjective risk is the perceived amount of risks based on each individual’s opinions. According to the article, if we can calculate risks, such as the amount of risks to be bitten by a shark, this is much more difficult to calculate subjective risks.
b.
As explained in the article, subjective risk is the individual perception of the risk, and can be driven by the social and psychological state of the individual as well as its previous experiences. Indeed, subjective risks are highly driven …show more content…
Objective risks differ principally to subjective risks by the fact that there is no personal bias in the calculation of the probability that the risk can occur. Objective risks are not driven by one individual experience or state of mind, and can be mathematically calculated.
d. An example of subjective risk
One person decides to bet on the winner of the next soccer champion in the English championship. As there are 20 teams in the league, the probability that one team wins the championship is mathematically 1 over 20. However, the fan who bets on a specific winner may be biased based on the previous results the team had the previous seasons, his perception of the new players who are joining the team, or simply by his love, or passion for the team. He might then see his bet as less, or more