Question 1

In a put option,the:

Accepted Answer

A)  writer is locked into handing over the underlying asset at a specified time. 
B)  buyer has the option to sell the specified asset at a specified time. 
C)  buyer is locked into receiving the underlying asset at a specified time. 
D)  seller must hand over the specified asset at a specified time. 
A)  writer is locked into handing over the underlying asset at a specified time. 
B)  buyer has the option to sell the specified asset at a specified time. 
C)  buyer is locked into receiving the underlying asset at a specified time. 
D)  seller must hand over the specified asset at a specified time.

Question 2

The maintenance margin call refers to the difference between the futures market price and the futures contract.

Accepted Answer

A) True 
 B)False

Question 3

The growth of the swaps market has been due to firms wanting to:

Accepted Answer

A)  lower the cost of funds. 
B)  hedge interest rate risk. 
C)  lock in profit margins. 
D)  do all of the given choices. 
A)  lower the cost of funds. 
B)  hedge interest rate risk. 
C)  lock in profit margins. 
D)  do all of the given choices.

Question 4

In relation to risk management for an organisation,discuss the issue of acceptable risks and the appropriate management of such risks.

Accepted Answer

Acceptable risks are those that an organ

Question 5

Given the ever-changing business environment,discuss how this fits with risk management.

Accepted Answer

The ever-changing business environment p

Question 6

A company,worried that the cost of funds might rise during the term of their short-term borrowing,can hedge this rise by:

Accepted Answer

A)  buying futures contracts on bank-accepted bills. 
B)  selling futures contracts on bank-accepted bills. 
C)  buying bank-accepted bills on the spot market. 
D)  increasing the amount of money that has been borrowed. 
A)  buying futures contracts on bank-accepted bills. 
B)  selling futures contracts on bank-accepted bills. 
C)  buying bank-accepted bills on the spot market. 
D)  increasing the amount of money that has been borrowed.

Question 7

In the futures markets,when the initial margin of a futures account is topped up daily to cover adverse futures price movements,this is called:

Accepted Answer

A)  marked-to-market. 
B)  maintenance margin call. 
C)  short call. 
D)  closing-out. 
A)  marked-to-market. 
B)  maintenance margin call. 
C)  short call. 
D)  closing-out.

Question 8

One of the important first steps in a risk management strategy for a company is to:

Accepted Answer

A)  establish related risk and product controls. 
B)  analyse the impact of the risk exposure. 
C)  select appropriate risk management strategies. 
D)  continually monitor the existing strategies. 
A)  establish related risk and product controls. 
B)  analyse the impact of the risk exposure. 
C)  select appropriate risk management strategies. 
D)  continually monitor the existing strategies.

Question 9

Risk exposures that may impact on the normal day-to-day running of a business are called:

Accepted Answer

A)  transactional. 
B)  operational. 
C)  financial. 
D)  functional. 
A)  transactional. 
B)  operational. 
C)  financial. 
D)  functional.

Question 10

According to the text there are three steps:
i.Assess the attitude of the organisation to each identified risk exposure
ii.Analyse the impact of the risk exposures
iii.Identify operational and financial risk exposures
Which is the correct order?

Accepted Answer

A)  i, ii, iii 
B)  iii, ii, i 
C)  ii, i, iii 
D)  iii, i, ii 
A)  i, ii, iii 
B)  iii, ii, i 
C)  ii, i, iii 
D)  iii, i, ii

Question 11

What is financial risk in relation to an organisation?

Accepted Answer

Financial risk in relation to an organiz

Question 12

For a corporation,external risk management strategies include leading and lagging FX transactions.

Accepted Answer

A) True 
 B)False

Question 13

An agreement between two parties to exchange a series of cash flows similar to those resulting from an exchange of different types of bonds is called a/an:

Accepted Answer

A)  credit swap. 
B)  interest rate swap. 
C)  yield curve swap. 
D)  notional spread. 
A)  credit swap. 
B)  interest rate swap. 
C)  yield curve swap. 
D)  notional spread.

Question 14

Which of the following statements is incorrect?

Accepted Answer

A)  Part of a company's credit policy considers how much credit a customer should be granted. 
B)  Cost-benefit analysis can be used to evaluate an investment of a back-up computer centre or outsource the back-up to an outside centre provider. 
C)  After identification of all of its risk exposure an organisation must seek to remove all these risks. 
D)  Procedural controls of a risk management strategy documents all the products that can be used by the organisation. 
A)  Part of a company's credit policy considers how much credit a customer should be granted. 
B)  Cost-benefit analysis can be used to evaluate an investment of a back-up computer centre or outsource the back-up to an outside centre provider. 
C)  After identification of all of its risk exposure an organisation must seek to remove all these risks. 
D)  Procedural controls of a risk management strategy documents all the products that can be used by the organisation.

Question 15

As risks for a company vary over time a flexible and robust risk management strategy is essential for an organisation no matter how large or small.

Accepted Answer

A) True 
 B)False

Question 16

An option that gives the option buyer the right to sell the commodity or financial instrument specified in the contact at the exercise price is called:

Accepted Answer

A)  an American option. 
B)  a European option. 
C)  a call option. 
D)  a put option. 
A)  an American option. 
B)  a European option. 
C)  a call option. 
D)  a put option.

Question 17

A commercial bank has to consider in its risk management procedures not only interest rate risk but also credit risk and liquidity risk.

Accepted Answer

A) True 
 B)False

Question 18

The holder of an American call option has the right to:

Accepted Answer

A)  buy the underlying asset at the exercise price on or before the expiration date. 
B)  buy the underlying asset only on the expiration date. 
C)  sell the underlying asset at the exercise price on or before the contract expiration date. 
D)  sell the underlying asset only at the expiration date. 
A)  buy the underlying asset at the exercise price on or before the expiration date. 
B)  buy the underlying asset only on the expiration date. 
C)  sell the underlying asset at the exercise price on or before the contract expiration date. 
D)  sell the underlying asset only at the expiration date.

Question 19

The board of directors of a company is responsible for the implementation and monitoring of risk management strategies.

Accepted Answer

A) True 
 B)False

Question 20

A standardised agreement traded on an organised exchange for delivery of a specified security or commodity at a specified price on a predetermined date is a/an:

Accepted Answer

A)  hedging contract. 
B)  futures contract. 
C)  option contract. 
D)  swap contract. 
A)  hedging contract. 
B)  futures contract. 
C)  option contract. 
D)  swap contract.

Exam 18: An Introduction to Risk Management and Derivatives

In a put option,the:

The maintenance margin call refers to the difference between the futures market price and the futures contract.

The growth of the swaps market has been due to firms wanting to:

In relation to risk management for an organisation,discuss the issue of acceptable risks and the appropriate management of such risks.

Given the ever-changing business environment,discuss how this fits with risk management.

A company,worried that the cost of funds might rise during the term of their short-term borrowing,can hedge this rise by:

In the futures markets,when the initial margin of a futures account is topped up daily to cover adverse futures price movements,this is called:

One of the important first steps in a risk management strategy for a company is to:

Risk exposures that may impact on the normal day-to-day running of a business are called:

According to the text there are three steps: i.Assess the attitude of the organisation to each identified risk exposure ii.Analyse the impact of the risk exposures iii.Identify operational and financial risk exposures Which is the correct order?

What is financial risk in relation to an organisation?

For a corporation,external risk management strategies include leading and lagging FX transactions.

An agreement between two parties to exchange a series of cash flows similar to those resulting from an exchange of different types of bonds is called a/an:

Which of the following statements is incorrect?

As risks for a company vary over time a flexible and robust risk management strategy is essential for an organisation no matter how large or small.

An option that gives the option buyer the right to sell the commodity or financial instrument specified in the contact at the exercise price is called:

A commercial bank has to consider in its risk management procedures not only interest rate risk but also credit risk and liquidity risk.

The holder of an American call option has the right to:

The board of directors of a company is responsible for the implementation and monitoring of risk management strategies.

A standardised agreement traded on an organised exchange for delivery of a specified security or commodity at a specified price on a predetermined date is a/an:

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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