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Example #9. Chapter 17: Types of Risk

TL: "Distinguishing between beta and alpha risk can be difficult" (page 304).

Beta risk is ... Alpha risk is ...

LCT: Reviewing Exhibit 17.1, Value Implications of Risk Appetite Change, distinguish between beta and alpha risk. This is reprinted as Exhibit 2.3 in this chapter.

LN: Distinguishing requires recognizing, comprehending, and determining. Definition recall does not. Difficult material may necessitate additional teacher facilitation and at the same time offer another student learning opportunity for discovery.

Example #10. Chapter 18: Managing Financial Risk

TL: Cover Exhibit 18.1, Examples of Contracts Traded on Major U.S. Futures Exchanges (page 322).

Cover cases on currency risk, interest rate risk, and commodity price risk (page 323-325).

Identify financial question of "Does Hedging Affect Firm Value?" (page 327).

LCT: Explore the available futures contracts on cmegroup.com:

• Agriculture

• Energy

• Equity index

• Foreign exchange (FX)

• Interest rates

• Metals

• Options

Value Implications of Risk Appetite Changes

Exhibit 2.3 Value Implications of Risk Appetite Changes

• Over-the-counter (OTC) market

• Real estate

• Weather

Select a specific futures contract of interest to your group under Products & Trading, Products (for example, EUR/USD under FX).

Review the quotes and the contract specifications for your selected futures contract.

Suggest a scenario where your selected futures contract could be applied. Critique the financial issue of "Does Hedging Affect Firm Value?"

LN: Students are engaged by explore, review, suggest, and apply versus covering three examples they have already read. Note that the teacher may need to facilitate the estimation of the selected futures contract's payoff, which may be any of those available, not just the three prepared text examples. Every class to date has had at least one group select a weather futures contract. Content is used in the learning process.

 
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