Exam 20: Corporate Risk Management

Ahmad bought call options on Home Depot with a strike price of $130. The option premium was $6.68. Just before the contract expired, Home Depot stock was $135 per share. Ahmad

Options contracts all expire on the last trading day of the month.

There is no actual buying or selling that occurs with a futures contract.

Open interest provides the investor with some indication of the amount of liquidity associated with a particular option.

Assume that government and insurance providers pressure physicians to prescribe generic drugs whenever possible. For the producers of branded drugs, this change represents

Barco Corp. common stock is currently selling for $36.50. A call option on Barco stock costs $.75 per share on a normal contract of 100 shares. This option has an exercise price of $39 and expires in one month. What is the minimum value of this option?

A purchaser of commodities who is completely hedged with forward contracts has eliminated the risk that prices will rise before the purchase is concluded.

A large agribusiness firm has contracted to deliver 100,000 bushels of wheat for $4.50 a bushel at the end of October. On the delivery date, the spot price of wheat is $4.70 per bushel. Which of the following is true?

Firms that wish to minimize risk will attempt to

How can a gold futures contract be used as a hedge against a potentially dramatic decrease in the price of the gold needed as an input into the production of computer microprocessors?

A credit default swap functions like an insurance policy against the possibility of default on a bond or other security collateralized by debt.

Banque de Lyon agrees to sell Golden Socks 1,000,000 euro at a price of $1.10 to the euro 6 months from today. If the spot price of the euro in six months is $1.20,

An options contract gives its owner the right to buy or sell a fixed number of shares at a specified price over a limited time period.

Which of the following scenarios carries the greatest risk of NOT being able to meet required payments (capital expenditure, dividend, interest and principal requirements) totaling $96 million?

Swenson Oil & Gas allows its customers to prepurchase heating oil in June for the coming winter. Swenson's customers who take advantage of the offer

Self-insurance would not provide adequate protection in which of the following circumstances?

Erin wrote a put option on Verizon stock with a striking price of $53 per share. At the expiration date, Verizon was selling for $50 per share. Which statement best describes the action that Erin should or must take?

Bowman-Daniela-Mainland is a major producer and exporter of agricultural commodities. It has sold soy beans for future delivery to a Japanese firm and expects to receive payments of 400 million yen in 6 months and another 400 million yen in 1 year. To lock in the exchange rates on these two payments, BDM arranges forward contracts with an investment banker to sell 400 million yen at $0.0110 in 6 months and $0.0115 in 1 year. What will BDM's cash flow be in dollars from each of these transactions? How has it fixed its revenue in dollars from the soy bean sales?

The optimal corporate risk management strategy is to

Which of the following individual situations would best justify the cost of a life insurance policy?