Lecture 2 part 2

Question 1

In finance, risk is …

Answer 1

the possibility that actual outcomes deviate from
expected ones.

Question 2

A basic risk metric is

Answer 2

variance

Question 3

Variance =

Answer 3

𝔼(𝑋 − 𝑋)^2= 𝜎^2

Question 4

Value-at-Risk (VaR) measures

Answer 4

the worst expected loss at a given confidence level (probability)

Question 5

VaR:

Answer 5

Value at risk

Question 6

(in excel:) VaR =

Answer 6

Mean – norminv. (quantile, mean, stand.dev.)

Question 7

For integration between operational hedging and financial flexibility we must cover the dimensions of …

Answer 7

feasibility, trade-off and structure

Question 8

Feasibility includes

Answer 8

Source of indipendence, timing, availability

Question 9

Trade-off include

Answer 9

value, risk, cost

Question 10

Structure includes

Answer 10

organization, supply chain, information, capital

Question 11

Buyer-Backed Purchase Order Finance (BPOF) is a…

Answer 11

financing method where a supplier receives funding from a financial institution based on a confirmed purchase order (PO) from a creditworthy buyer. This helps suppliers fulfill large orders even if they lack upfront capital. The purpose is to help suppliers fund production before fulfilling an order.

Question 12

An Advance Payment Discount is a…

Answer 12

price reduction offered by a seller to a buyer in exchange for paying for goods or services before delivery. This incentivizes early payment and improves cash flow for the seller.

Question 13

Zhao, L., A. Huchzermeier. 2019. Managing supplier financial distress with advance payment discount and purchase order financing. Omega: The International Journal of Management Science, 88, 77-90.

Came forth with a contribution concering the relathionship between ADV and BPOF. What was it?

Answer 13

A retailer with insufficient capital will first maximize her use of APD and only use BPOF if the cost of financial distress outweighs the benefit of a price discount.