Question 1

Major financial risk exposures for corporations include:

Accepted Answer

A)  a change in interest rates. 
B)  foreign currency appreciating. 
C)  company with insufficient funds to pay wages. 
D)  all of the given choices. 
A)  a change in interest rates. 
B)  foreign currency appreciating. 
C)  company with insufficient funds to pay wages. 
D)  all of the given choices. D

Question 2

If an FRA dealer quotes '6Mv9M 7.25 to 20',this means that the dealer is prepared to:

Accepted Answer

A)  lend three-month money at 7.05% per annum. 
B)  borrow three-month money at 7.05% per annum. 
C)  lend three-month money at 7.25% per annum. 
D)  borrow three-month money at 7.25% per annum. 
A)  lend three-month money at 7.05% per annum. 
B)  borrow three-month money at 7.05% per annum. 
C)  lend three-month money at 7.25% per annum. 
D)  borrow three-month money at 7.25% per annum. C

Question 3

In relation to futures markets,which of the following regarding initial margins is false?

Accepted Answer

A)  A futures trader is required to pay an initial margin to the clearinghouse. 
B)  The initial margin will be higher for low market volatility. 
C)  If the futures contract price drops below the minimum percentage, the initial margin will have to be increased. 
D)  In order to top up an insufficient initial margin a maintenance margin call will be made. 
A)  A futures trader is required to pay an initial margin to the clearinghouse. 
B)  The initial margin will be higher for low market volatility. 
C)  If the futures contract price drops below the minimum percentage, the initial margin will have to be increased. 
D)  In order to top up an insufficient initial margin a maintenance margin call will be made. B

Question 4

An American put option is worth more than a European put option as it can be advantageous to exercise an American put option before expiry.

Accepted Answer

A) True 
 B)False

Question 5

When a company contacts a bank and asks for a 3-month forward rate and is quoted by the bank's FX dealer AUD/USD0.9560-65 14.20,then the three month forward rate is:

Accepted Answer

A)  AUD/USD0.9536-45 
B)  AUD/USD0.9540-51 
C)  AUD/USD0.9574-85 
D)  AUD/USD0.9580-79 
A)  AUD/USD0.9536-45 
B)  AUD/USD0.9540-51 
C)  AUD/USD0.9574-85 
D)  AUD/USD0.9580-79

Question 6

In the futures markets,the funds that represent 2 to 10 per cent of the futures contract that a client pays to the futures exchange clearing house are called:

Accepted Answer

A)  maintenance margin. 
B)  initial collateral. 
C)  margin call. 
D)  initial margin. 
A)  maintenance margin. 
B)  initial collateral. 
C)  margin call. 
D)  initial margin.

Question 7

A government introducing legislation requiring carbon-emitting companies to lower their carbon emissions is an example of operational risk.

Accepted Answer

A) True 
 B)False

Question 8

For a company the process of risk management needs to:

Accepted Answer

A)  cover financial and operational risks only. 
B)  cover business and operational risks only. 
C)  be a structured process. 
D)  be flexible as the nature of risk is dynamic. 
A)  cover financial and operational risks only. 
B)  cover business and operational risks only. 
C)  be a structured process. 
D)  be flexible as the nature of risk is dynamic.

Question 9

Derivatives are the financial instruments that are:

Accepted Answer

A)  financial assets, such as shares and bonds that derive their value from the value of the company that issues them. 
B)  financial assets whose rates of return must be derived from information published in financial pages. 
C)  financial assets that derive their value from underlying assets. 
D)  derived by investment banks, which then trade them. 
A)  financial assets, such as shares and bonds that derive their value from the value of the company that issues them. 
B)  financial assets whose rates of return must be derived from information published in financial pages. 
C)  financial assets that derive their value from underlying assets. 
D)  derived by investment banks, which then trade them.

Question 10

It is argued that effective risk management is vital to the survival of an organisation because:

Accepted Answer

A)  most business organisations are exposed to a wide variety of risks. 
B)  many business failures can be attributed to inadequate policies. 
C)  most organisations are exposed to interest rate risk. 
D)  all of the given choices are correct. 
A)  most business organisations are exposed to a wide variety of risks. 
B)  many business failures can be attributed to inadequate policies. 
C)  most organisations are exposed to interest rate risk. 
D)  all of the given choices are correct.

Question 11

A FRA expressed as 3Mv5M means the settlement date is in three months and the interest cover is for a five-month period.

Accepted Answer

A) True 
 B)False

Question 12

In relation to risk management for an organisation,discuss the procedures of identification and analysis of risk exposures.

Accepted Answer

Risk management is a crucial aspect of o

Question 13

An option buyer:

Accepted Answer

A)  has a greater insurance benefit than the purchaser of a futures contract. 
B)  will generally incur a lower cost compared to a purchaser of a futures contract. 
C)  is purchasing a very risky instrument if they don't own the underlying asset as they are locked in to buying at expiration. 
D)  carries the risk of unfavourable price movements. 
A)  has a greater insurance benefit than the purchaser of a futures contract. 
B)  will generally incur a lower cost compared to a purchaser of a futures contract. 
C)  is purchasing a very risky instrument if they don't own the underlying asset as they are locked in to buying at expiration. 
D)  carries the risk of unfavourable price movements.

Question 14

The risk exposure when a corporation appears to have insufficient funds to meet day-to-day commitments as they fall due is known as:

Accepted Answer

A)  transaction risk. 
B)  liquidity risk. 
C)  interest rate risk. 
D)  default risk. 
A)  transaction risk. 
B)  liquidity risk. 
C)  interest rate risk. 
D)  default risk.

Question 15

An analysis of the costs associated with establishing and maintaining a particular risk management strategy versus the risk management benefits to be obtained is called a SMART analysis.

Accepted Answer

A) True 
 B)False

Question 16

Risk management objectives and policies should be established by:

Accepted Answer

A)  the chief executive officer. 
B)  the chief financial officer. 
C)  the board of directors. 
D)  a company's shareholders. 
A)  the chief executive officer. 
B)  the chief financial officer. 
C)  the board of directors. 
D)  a company's shareholders.

Question 17

In Australia futures contracts are traded:

Accepted Answer

A)  face-to-face by market participants. 
B)  electronically by the ASX Trade 24. 
C)  over-the-counter by dealers. 
D)  over-the-counter by commodity and security brokers. 
A)  face-to-face by market participants. 
B)  electronically by the ASX Trade 24. 
C)  over-the-counter by dealers. 
D)  over-the-counter by commodity and security brokers.

Question 18

The market ASX Trade 24 trades in:

Accepted Answer

A)  shares 24 hours. 
B)  shares and bonds 24 hours. 
C)  futures contracts. 
D)  forward contracts. 
A)  shares 24 hours. 
B)  shares and bonds 24 hours. 
C)  futures contracts. 
D)  forward contracts.

Question 19

Which of the following statements relating to the use of futures contracts is incorrect?

Accepted Answer

A)  Futures contracts are derivative products that derive from a physical market product. 
B)  The pricing of futures contracts is based on the price of the underlying market product. 
C)  Future physical market price changes are offset by a profit or loss in the futures market. 
D)  Futures contracts are generally closed out by delivery of the physical market product. 
A)  Futures contracts are derivative products that derive from a physical market product. 
B)  The pricing of futures contracts is based on the price of the underlying market product. 
C)  Future physical market price changes are offset by a profit or loss in the futures market. 
D)  Futures contracts are generally closed out by delivery of the physical market product.

Question 20

In the futures markets,a maintenance margin call refers to:

Accepted Answer

A)  funds paid to the clearing house by the brokers as insurance against losses. 
B)  funds paid to the clearing house by each trader to cover losses. 
C)  realised profits paid by the clearing house to traders. 
D)  the difference between the futures contracts price and the underlying asset. 
A)  funds paid to the clearing house by the brokers as insurance against losses. 
B)  funds paid to the clearing house by each trader to cover losses. 
C)  realised profits paid by the clearing house to traders. 
D)  the difference between the futures contracts price and the underlying asset.

Exam 18: An Introduction to Risk Management and Derivatives

Major financial risk exposures for corporations include:

If an FRA dealer quotes '6Mv9M 7.25 to 20',this means that the dealer is prepared to:

In relation to futures markets,which of the following regarding initial margins is false?

An American put option is worth more than a European put option as it can be advantageous to exercise an American put option before expiry.

When a company contacts a bank and asks for a 3-month forward rate and is quoted by the bank's FX dealer AUD/USD0.9560-65 14.20,then the three month forward rate is:

In the futures markets,the funds that represent 2 to 10 per cent of the futures contract that a client pays to the futures exchange clearing house are called:

A government introducing legislation requiring carbon-emitting companies to lower their carbon emissions is an example of operational risk.

For a company the process of risk management needs to:

Derivatives are the financial instruments that are:

It is argued that effective risk management is vital to the survival of an organisation because:

A FRA expressed as 3Mv5M means the settlement date is in three months and the interest cover is for a five-month period.

In relation to risk management for an organisation,discuss the procedures of identification and analysis of risk exposures.

An option buyer:

The risk exposure when a corporation appears to have insufficient funds to meet day-to-day commitments as they fall due is known as:

An analysis of the costs associated with establishing and maintaining a particular risk management strategy versus the risk management benefits to be obtained is called a SMART analysis.

Risk management objectives and policies should be established by:

In Australia futures contracts are traded:

The market ASX Trade 24 trades in:

Which of the following statements relating to the use of futures contracts is incorrect?

In the futures markets,a maintenance margin call refers to:

A Modern Financial System: An Overview

Commercial Banks

Non-Bank Financial Institutions

The Share Market and the Corporation

Corporations Issuing Equity in the Share Market

Investors in the Share Market

Forecasting Share Price Movements

Mathematics of Finance: An Introduction to Basic Concepts and Calculations

Short-Term Debt

Medium-To-Long-Term Debt

International Debt Markets

Government Debt, monetary Policy and the Payments System

An Introduction to Interest Rate Determination and Forecasting

Interest Rate Risk

Foreign Exchange: The Structure and Operation of the Fx Market

Foreign Exchange: Factors That Influence the Exchange Rate

Foreign Exchange: Risk Identification and Management

Future Contracts and Forward Rate Agreements

Options

Interest Rate Swaps, Cross-Currency Swaps and Credit Default

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