Topic 12: Modelling

Question 1

What is simulation modelling?

Answer 1

Simulation modelling means using a computer and mathematical formulas to imitate a real-life phenomenon.

Question 2

Using a computer and mathematical formulas to imitate a real-life phenomenon is known as what?

Answer 2

Stimulation modelling.

Question 3

How does an analyst use a simulation model?

Answer 3

An analyst builds a model in order to try out ‘what if?’ scenarios. The model predicts what could happen in the future when the analyst changes inputs to the model.

Question 4

Who builds a model in order to try out ‘what if?’ scenarios?

Answer 4

An analyst.

Question 5

Give some examples of simulation modelling.

Answer 5

Financial modelling - ‘what if’ we offer discounts on popular food items? How will our profits be affected? (supermarket).
Government monetary policy modelling - ‘what if’ we put up taxes? How will the Treasury’s income be affected?
Weather modelling - what is the short term and long term forecast?
Climate change - ‘what if’ the global temperature rises by 2 degrees? How will that change weather forecasts?
Building stresses and strains - ‘what if’ we build an office block with 100 floors? How will it cope with strong winds?
Transport modelling - ‘what if’ we build a cycle lane in Eastbourne? How will it affect traffic congestion?

Question 6

Financial modelling is an example of what?

Answer 6

Stimulation modelling.

Question 7

Government monetary policy modelling is an example of what?

Answer 7

Stimulation modelling.

Question 8

Weather modelling is an example of what?

Answer 8

Stimulation modelling.

Question 9

Climate change is an example of what?

Answer 9

Stimulation modelling.

Question 10

Building stresses and strains are an example of what?

Answer 10

Stimulation modelling.

Question 11

Transport modelling is an example of what?

Answer 11

Stimulation modelling.

Question 12

Give two advantages of simulation modelling in financial forecasting for a company.

Answer 12

It is possible to analyse many different future situations that couldn’t be tested in real-life.
The company avoids wasting money on actions that would not work out.
It can ‘roll on’ the model to see what it is like after more than one year.
It can prepare to cope with periods of low profits or rapid growth.

Question 13

Being able to analyse many different future situations that couldn’t be tested in real-life is an advantage of what?

Answer 13

Stimulation modelling in financial forecasting.

Question 14

The company being able avoid wasting money on actions that would not work out is an advantage of what?

Answer 14

Stimulation modelling in financial forecasting.

Question 15

Being able to ‘roll on’ the model to see what it is like after more than one year is an advantage of what?

Answer 15

Stimulation modelling in financial forecasting.

Question 16

Being able to prepare to cope with periods of low profits or rapid growth is an advantage of what?

Answer 16

Stimulation modelling in financial forecasting.

Question 17

Give two disadvantages of simulation modelling.

Answer 17

It is difficult to know if all the necessary equations have been included.
Complex simulations, such as weather forecasts, require significant processing power.
If something unusual happens in real life, the model won’t be able to predict the outcome.
Long-term predictions are difficult to make accurately.

Question 18

Having a difficulty in knowing if all the necessary equations have been included is a disadvantage of what?

Answer 18

Stimulation modelling

Question 19

Complex simulations requiring significant processing power is a disadvantage of what?

Answer 19

Stimulation modelling

Question 20

Unusual happenings in real life means the model won’t be able to predict the outcome. This is a disadvantage of what?

Answer 20

Stimulation modelling

Question 21

Long-term predictions being difficult to make accurately is a disadvantage of what?

Answer 21

Stimulation modelling