- 20 Marks
CSME – May 2017 – L2 – SB – Q3 – Risk Management and Corporate Strategy
Explain business risk to a conservative investor and discuss strategies for risk control and monitoring.
Question
Mallam Danladi is a civil servant who has won a sum of one hundred million Naira in a lottery. Being a very conservative person who is averse to risks, Mallam Danladi is contemplating putting the money in a fixed deposit account at an interest rate of 14% per annum or into treasury bills at an interest rate of 18.5% per annum. These two options are considered to be virtually risk-free. Mr. Madoff, a risk consultant, advised him to invest in the production of shea butter, coconut oil, and black soap, with a promise of 52% profit per annum. In an attempt to convince Mallam Danladi to invest in the production of these items, Mr. Madoff tried to educate him on the nature of risks and how to effectively monitor and control them in ways that will ensure that business remains highly profitable.
Required:
a. Explain briefly the nature of risk in business to Mallam Danladi. (2½ Marks)
b. Discuss FOUR distinct means of controlling business risk. (10 Marks)
c. Explain briefly the purpose of monitoring risks in business. (3 Marks)
d. Discuss THREE ways of monitoring risks in business. (4½ Marks)
Find Related Questions by Tags, levels, etc.