What is the difference between a traditional hedge, a “macro-hedge” and stress loss protection?

1 Identify the nature of the financial risk faced by WD.

#2 What is your best forecast for the yen/$ exchange rate? Discuss the assumptions behind the economic logic of your forecast.

#3 What is the cost of yen financing for WD in Yen and in ECU with the ECU/YEN swap?

#4 Do you recommend that WD raise ECU-¬‐ denominated financing to deal with its yen currency exposure?

Part 2

Read chapter 17 on “JP Morgan Chase London Whale” in Global Derivative Debacles and discuss ANEY ONE QUESTION BELOW:

# 1 Do you consider purchasing a credit default swap to be a speculative bet? What is the maximum gain you can hope? What is the maximum loss you should fear?

# 2 Would you consider the purchase of a credit default swap similar to the purchaser the underwriting of an option? Would it be a call or a put option?

#3 Why was the introduction of a new model of V@R for the Synthetic Credit Port-folio instrumental in unleashing the massive losses that were attributed to the London whale?

# 4 Is it fair to compare the Synthetic Credit Portfolio to an in-house hedge fund?

#5 What is the difference between a traditional hedge, a “macro-hedge” and stress loss protection?

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