Define a high-risk universe

Individual Essay – Financial Crisis Essay Description

Fixed Income

Description and Guidelines

This year marks the fourteenth anniversary of the 2008 financial crisis. Looking back at those fourteen years, we experienced a very solid market rebound in equities and our economy achieved full employment. While we began 2022 with the expectation of a growing economy, we are now facing what may become yet another financial crisis due to the current pandemic, inflation, and rising debt. The level of U. S. government debt as of the third quarter of 2021 was $28.5 trillion. This represents an increase of over 166% from 2008 where the total debt was $10.7 trillion. Many economists believe that this level of debt is unsustainable.

The goal of the essay is to explore possibilities for the next financial crisis. Financial Crises are not necessarily linked to banking or housing markets because generally, crises occur in different ways and in different markets. This is not to say that markets are independent; for example, the banking sector is now very different than it was twelve years ago. In this assignment you will develop a strategy to hedge risk should a market or sector be affected by another financial crisis. We want to bet on or against a particular sector if another financial crisis occurs. Where do you think that the next financial crisis is going to hit? How bad will the next financial crisis be? These are the types of questions that we want to think about in this essay.

The deliverable for this essay is a two-page, single-spaced write-up that will construct an argument in favor of a risk management opinion. The two-page limit includes all graphs, references, and supporting arguments. In other words, the two-page limit includes everything that you think is important to convey your message. You do not need to add a cover page to the document; however, your document must contain the names and group number as well as the document title (Financial Crisis Essay). For example, your opinion could be as follows,

Yes, we believe that the financial sector is healthy, and the regulation and stress testing of the large banks have been a success. We recommend that investors increase their allocation to the banking sector.

You should support argument with data and be forward-looking. While it is very difficult to predict the market, it is important to notice that you will write this essay as a professional risk manager. Therefore, your potential clients expect you to have a view and to defend that view. Otherwise, they will not pay you a management fee. Below are some suggested steps that you could take to construct your argument. You are free to follow or use a different approach; these are only suggestions. Nothing prevents you from constructing your essay in a totally different way.

Your summary may include the following elements:

· Define a high-risk universe: This will allow you to focus on one index or investment pool. For example, the US government debt or the banking sector or emerging market debt sector.

· Support your opinion with data: While this essay is more of an opinion piece, it will be more convincing to your potential investors if you can demonstrate that you have studied the data and anchored your view on solid data.