Question 1

Which of the following is a loss that companies would self-insure?

Accepted Answer

A) Product breakage 
B) Fraud 
C) Unexpected business interruptions 
D) Officer liability 
A) Product breakage 
B) Fraud 
C) Unexpected business interruptions 
D) Officer liability A

Question 2

Which of the following is the current price in a futures contract?

Accepted Answer

A) volatile price 
B) spot price 
C) short price 
D) long price 
A) volatile price 
B) spot price 
C) short price 
D) long price B

Question 3

Forward contracts are most common in markets.

Accepted Answer

A) stock 
B) agricultural 
C) currency 
D) bond 
A) stock 
B) agricultural 
C) currency 
D) bond C

Question 4

Which of the following is a motive for using insurance to manage risk?

Accepted Answer

A) Premiums, no matter how high, are consistent and easy to budget. 
B) The firm intends to make money from the insurance company if a specified loss happens. 
C) The firm does not want to be concerned with small, inconsequential losses and chooses to have the insurance company handle them. 
D) Insurance can provide protection against events that can cause financial distress. 
A) Premiums, no matter how high, are consistent and easy to budget. 
B) The firm intends to make money from the insurance company if a specified loss happens. 
C) The firm does not want to be concerned with small, inconsequential losses and chooses to have the insurance company handle them. 
D) Insurance can provide protection against events that can cause financial distress.

Question 5

An example of hedging in order to control risk would be:

Accepted Answer

A) Car makers reducing the number of models that will be manufactured this year. 
B) Toy stores placing orders in December for toys needed by Christmas. 
C) Airline companies attempting to lock in the price paid for fuel. 
D) Fashion designers offering showings of their new clothing line in several major cities. 
A) Car makers reducing the number of models that will be manufactured this year. 
B) Toy stores placing orders in December for toys needed by Christmas. 
C) Airline companies attempting to lock in the price paid for fuel. 
D) Fashion designers offering showings of their new clothing line in several major cities.

Question 6

When a lack of information can result in business risk, management can do all of the following to acquire additional information EXCEPT:

Accepted Answer

A) Refer to the annual reports of competitors for needed information. 
B) Purchase information from those that possess the knowledge needed. 
C) Form a panel to evaluate the product 
D) Test market a product 
A) Refer to the annual reports of competitors for needed information. 
B) Purchase information from those that possess the knowledge needed. 
C) Form a panel to evaluate the product 
D) Test market a product

Question 7

A risk that shareholder wealth-maximizing managers should seek to offset in the firm that they are managing is:

Accepted Answer

A) dividend payout risk 
B) exchange rate risk 
C) research and development risk 
D) leasing risk 
A) dividend payout risk 
B) exchange rate risk 
C) research and development risk 
D) leasing risk

Question 8

A short hedge requires the a futures contract.

Accepted Answer

A) margining 
B) creating 
C) buying of 
D) selling of 
A) margining 
B) creating 
C) buying of 
D) selling of

Question 9

List some nonhedging risk management strategies.

Accepted Answer

Nonhedging strategies are:
1.Acquisition

Question 10

Which of the following describes basis risk?

Accepted Answer

A) a natural disaster that affects the underlying commodity 
B) the risk that the commodity is not marketable 
C) the variance in the price of the commodity and the value of the American dollar 
D) a change in the relationship between the futures price and the local spot price 
A) a natural disaster that affects the underlying commodity 
B) the risk that the commodity is not marketable 
C) the variance in the price of the commodity and the value of the American dollar 
D) a change in the relationship between the futures price and the local spot price

Question 11

All of the following are reasons to reduce financial distress EXCEPT:

Accepted Answer

A) enhanced debt capacity. 
B) reduced WACC. 
C) better currency exchange ratio. 
D) ensure adequate cash flows. 
A) enhanced debt capacity. 
B) reduced WACC. 
C) better currency exchange ratio. 
D) ensure adequate cash flows.

Question 12

Which of the following is the most important reason for firms to use risk management techniques?

Accepted Answer

A) To make supernormal profits 
B) To reduce the chance of catastrophic financial distress 
C) To reduce management's liability 
D) To control inventory losses 
A) To make supernormal profits 
B) To reduce the chance of catastrophic financial distress 
C) To reduce management's liability 
D) To control inventory losses

Question 13

Which of the following statements about diversification is/are correct?
I.Diversification may be able to reduce the risk of a portfolio to less than the weighted average risk of the assets.
II.Diversification is always prudent and should be expanded to include new, unrelated products whenever possible.

Accepted Answer

A) Only statement I is correct 
B) Only statement II is correct 
C) Both statements I and II are correct 
D) Neither statement I nor II is correct 
A) Only statement I is correct 
B) Only statement II is correct 
C) Both statements I and II are correct 
D) Neither statement I nor II is correct

Question 14

Which of the following statements is/are true about futures contracts?
I.The buyer of the contract must take delivery of the underlying commodity.
II.To reverse a position, the buyer of a contract must sell an identical contract which is recognized as offsetting the other one.

Accepted Answer

A) Only statement I is correct 
B) Only statement II is correct 
C) Both statements I and II are correct 
D) Neither statement I nor II is correct 
A) Only statement I is correct 
B) Only statement II is correct 
C) Both statements I and II are correct 
D) Neither statement I nor II is correct

Question 15

All of the following are losses generally insured by corporations EXCEPT:

Accepted Answer

A) Death of key employees 
B) Executive bonuses 
C) Fraud 
D) Product liability 
A) Death of key employees 
B) Executive bonuses 
C) Fraud 
D) Product liability

Question 16

To offset the lack of marketing information which could result in corporate risk, a firm can do which of the following?

Accepted Answer

A) Manufacture the product overseas. 
B) Develop more raw material suppliers. 
C) Test-market a product. 
D) Change advertising. 
A) Manufacture the product overseas. 
B) Develop more raw material suppliers. 
C) Test-market a product. 
D) Change advertising.

Question 17

Which of the following statements about risk is/are correct?

Accepted Answer

A) Only statement I is correct 
B) Only statement II is correct 
C) Both statements I and II are correct 
D) Neither statement I nor II is correct 
A) Only statement I is correct 
B) Only statement II is correct 
C) Both statements I and II are correct 
D) Neither statement I nor II is correct

Question 18

Forward contracts are said to possess risk.

Accepted Answer

A) business risk 
B) financial risk 
C) performance risk 
D) spot risk 
A) business risk 
B) financial risk 
C) performance risk 
D) spot risk

Question 19

List five hedging strategies for risk management

Accepted Answer

1.Forward contracts

Question 20

Which of the following is a related benefit of hedging external risks for a company?

Accepted Answer

A) Management can determine international markets for their product. 
B) Management can forecast political events that may impact their sales. 
C) Management can focus on performance and compensation factors that are under their control. 
D) Management can determine the economic forces that will impact their earnings. 
A) Management can determine international markets for their product. 
B) Management can forecast political events that may impact their sales. 
C) Management can focus on performance and compensation factors that are under their control. 
D) Management can determine the economic forces that will impact their earnings.

Exam 21: Risk Management

Which of the following is a loss that companies would self-insure?

Which of the following is the current price in a futures contract?

Forward contracts are most common in markets.

Which of the following is a motive for using insurance to manage risk?

An example of hedging in order to control risk would be:

When a lack of information can result in business risk, management can do all of the following to acquire additional information EXCEPT:

A risk that shareholder wealth-maximizing managers should seek to offset in the firm that they are managing is:

A short hedge requires the a futures contract.

List some nonhedging risk management strategies.

Which of the following describes basis risk?

All of the following are reasons to reduce financial distress EXCEPT:

Which of the following is the most important reason for firms to use risk management techniques?

Which of the following statements is/are true about futures contracts? I.The buyer of the contract must take delivery of the underlying commodity. II.To reverse a position, the buyer of a contract must sell an identical contract which is recognized as offsetting the other one.

All of the following are losses generally insured by corporations EXCEPT:

To offset the lack of marketing information which could result in corporate risk, a firm can do which of the following?

Which of the following statements about risk is/are correct?

Forward contracts are said to possess risk.

List five hedging strategies for risk management

Which of the following is a related benefit of hedging external risks for a company?

The Role and Objective of Financial Management

The Domestic and International Financial Marketplace

Evaluation of Financial Performance

Financial Planning and Forecasting

The Time Value of Money

A: The Time Value of Money

Fixed-Income Securities: Characteristics and Valuation

Common Stock: Characteristics, Valuation, and Issuance

Analysis of Risk and Return

Capital Budgeting and Cash Flow Analysis

Capital Budgeting: Decision Criteria and Real Option Considerations

A: Capital Budgeting: Decision Criteria and Real Option Considerations

Capital Budgeting and Risk

The Cost of Capital, Capital Structure, and Dividend Policy

Capital Structure Concepts

Capital Structure Management in Practice

A: Capital Structure Management in Practice

Dividend Policy

Working Capital Management

The Management of Cash and Marketable Securities

The Management of Accounts Receivable and Inventories

Lease and Intermediate-Term Financing

Financing with Derivatives

A: Financing with Derivatives

International Financial Management

Corporate Restructuring

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