Journal of
Financial Education

This article presents a synthesis of risk management within a financial framework. As risk management expands its scope, a coherent overview is needed to improve the understanding of risk, including the types of risk, the methods of managing risk and the impact of risk and its treatments on shareholder wealth. This synthesis highlights the pervasiveness of risk; it demonstrates how the classic risk management process can be used for more than just pure risks; and it places risk management in a wealth maximization paradigm.

We examine the results of a survey taken of university finance faculty regarding their perceptions of the relative quality of journals within ten sub-disciplines of finance. The literature review outlines strengths and weaknesses of the citations approach and survey approach to journal ranking. We argue that both methods need to be utilized. There is a significant positive relation between the survey ranks and ranks obtained from the citations methods in Accounting and Finance, Corporate Finance, Insurance, and Public Finance. Serious concern arises within Applied Finance where the correlation is negative and significant. In other fields, no correlation is established.

This paper provides a profile of the 287 Finance Chair Professorships in the United States from 1992 to 1999. It shows that the number of finance chair professorships has increased 8.5% from 1992 to 1997 but has increased only minimally from 1997 to 1999. Schools that have trained a large number of graduates now serving as chairholders are often listed among the best business schools in the Business Week directory of top 25 MBA programs and the U.S. News and World Report directory of top 25 business schools. Examples include Chicago, MIT, Pennsylvania and Harvard. About 95% of the 287 chairholders in 1999 were full professors who preferred to teach corporate finance, financial institutions and markets, or investments and preferred to research the areas of commercial banking and capital structure. The original data and statistics were obtained from Hasselback’s Guide to Finance Faculty from 1992 to 1999. Critical questions that can be considered for future research topics are provided.

The Asian financial crisis provides many important lessons to finance and economics students. For those professors who would like to cover this topic in their classroom, we provide an easy-to-follow guide to teaching about the crisis. Our instructions will be especially useful to those professors who are not experts on the Asian crisis, or who have not yet put together lecture material on this very important and timely topic. By following our teaching notes, any professor can provide a straight-forward, comprehensive, and easy-to-understand lecture on the crisis to almost any finance or economics class. To further assist the professor, we also provide sample transparencies.

The Senior Vice President of Capital Markets at Massachusetts Carnegie Bank has sold one of the bank’s customers a six month, 50,000,000 Swiss franc forward contract, creating a short position at the bank in Swiss francs. The bank’s objective is to make money with this opportunity while managing its downside risk. As a backdrop to the case, the bank is under some pressure to replace its traditional currency trading opportunities that have been eliminated by the introduction of the Euro in January, 1999 as the new, unified currency for most of Europe. However, a limiting factor to developing new business for the bank is its conservative culture.
    One alternative is for the bank, in a matter of minutes, to enter into a six month forward contract on more favorable terms than it has offered its customer and earn a guaranteed $25,000-$30,000. Another more profitable alternative involves the bank borrowing in the U.S. and creating a Swiss franc asset to offset the underlying risk. Although this would neutralize the bank’s currency risk position and guarantee a profit in the $65,000-$70,000 range, the CFO of the bank is concerned about placing low margin business on the bank’s balance sheet at a time when it is being scrutinized by credit rating agencies and security analysts. The third alternative of using the Euro as a proxy for the Swiss franc in a cross currency hedge has substantially more profit potential, possibly in the $200,000-$700,000 range, but with conjectural downside risk, including the possibility of a loss. The profit and risk calculations depend, in part, on the bank’s ability to forecast the Euro/Swiss franc cross rate six months forward using fundamental and technical analysis. Going "naked" is an alternative as well.
    Students have an opportunity to calculate the profit potential, assess the risk of each alternative and recommend a decision to the Senior Vice President at the bank, who is under pressure to increase currency trading revenue subject to several constraints. Furthermore, students can learn about the new currency alignment in Europe and the role of the Euro.
    The case can be used as part of the international component of financial management courses at the MBA level or upper level business finance courses at the undergraduate level. The case is rich enough so that it could also be used in international finance and management of financial institutions courses.