Question 1

A purchaser of commodities who is completely hedged with forward contracts will profit if prices fall before the purchase is concluded.

Accepted Answer

A) True 
 B)False

Question 2

Workers' compensation insurance protects employees income in case they are laid off or fired.

Accepted Answer

A) True 
 B)False

Question 3

A seller of commodities who has entered into forward contracts with customers will profit if prices fall before the purchase is concluded.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following types of insurance does NOT involve a contract with an external party?

Accepted Answer

A)  Property insurance 
B)  Life insurance 
C)  Directors and officers insurance 
D)  Self insurance 
A)  Property insurance 
B)  Life insurance 
C)  Directors and officers insurance 
D)  Self insurance

Question 5

Which of the following is a consequence of transferring risk to an insurance company?

Accepted Answer

A)  An increase in stock value because risk has been reduced. 
B)  A guaranteed small loss in exchange for protection against large losses. 
C)  Higher rates of return because the firm is now free to pursue high-risk projects. 
D)  Protection against losses at no significant cost to the firm. 
A)  An increase in stock value because risk has been reduced. 
B)  A guaranteed small loss in exchange for protection against large losses. 
C)  Higher rates of return because the firm is now free to pursue high-risk projects. 
D)  Protection against losses at no significant cost to the firm.

Question 6

How can a currency futures contract be used as a hedge against a potentially dramatic appreciation of a foreign currency that a U.S. company is expecting to convert into U.S. dollars?

Accepted Answer

A)  The U.S. company should sell the foreign currency using futures contracts. 
B)  The U.S. company should buy more foreign currency futures contracts than it should sell. 
C)  The U.S. company should buy the foreign currency using futures contracts. 
D)  This is a standard business situation that would be favorable if it were to happen, so no hedge is needed. 
A)  The U.S. company should sell the foreign currency using futures contracts. 
B)  The U.S. company should buy more foreign currency futures contracts than it should sell. 
C)  The U.S. company should buy the foreign currency using futures contracts. 
D)  This is a standard business situation that would be favorable if it were to happen, so no hedge is needed.

Question 7

Which of the following variables is NOT part of the Black-Scholes option pricing model?

Accepted Answer

A)  The expected rate of return on the market 
B)  The current stock price 
C)  The strike price or exercise price 
D)  The time remaining before the expiration date 
A)  The expected rate of return on the market 
B)  The current stock price 
C)  The strike price or exercise price 
D)  The time remaining before the expiration date

Question 8

The writer or seller of an option is exposed to greater risk than the buyer of the option.

Accepted Answer

A) True 
 B)False

Question 9

The writers of options and buyers of options have equal and opposite payoffs, minus commissions.

Accepted Answer

A) True 
 B)False

Question 10

The long and short positions on forward contracts will always have equal and opposite payoffs.

Accepted Answer

A) True 
 B)False

Question 11

A call option gives its owner the right to sell a given number of shares or some other asset at a specified price over a given period.

Accepted Answer

A) True 
 B)False

Question 12

Eliminating all possible risk will ultimately

Accepted Answer

A)  guarantee the highest possible cash flow over the long run. 
B)  cancel out all profits with cost of hedging. 
C)  result in lower expected cash flow but the highest cash flow for the worst case scenario. 
D)  guarantee that the firm will not experience losses. 
A)  guarantee the highest possible cash flow over the long run. 
B)  cancel out all profits with cost of hedging. 
C)  result in lower expected cash flow but the highest cash flow for the worst case scenario. 
D)  guarantee that the firm will not experience losses.

Question 13

A(n) ________ gives the holder the right to sell a stated number of shares at a specified price for a limited time.

Accepted Answer

A)  stock index futures contract 
B)  put option 
C)  call option 
D)  interest rate futures contract 
A)  stock index futures contract 
B)  put option 
C)  call option 
D)  interest rate futures contract

A purchaser of commodities who is completely hedged with forward contracts will profit if prices fall before the purchase is concluded.

Workers' compensation insurance protects employees income in case they are laid off or fired.

A seller of commodities who has entered into forward contracts with customers will profit if prices fall before the purchase is concluded.

Which of the following types of insurance does NOT involve a contract with an external party?

Which of the following is a consequence of transferring risk to an insurance company?

How can a currency futures contract be used as a hedge against a potentially dramatic appreciation of a foreign currency that a U.S. company is expecting to convert into U.S. dollars?

Which of the following variables is NOT part of the Black-Scholes option pricing model?

The writer or seller of an option is exposed to greater risk than the buyer of the option.

The writers of options and buyers of options have equal and opposite payoffs, minus commissions.

The long and short positions on forward contracts will always have equal and opposite payoffs.

A call option gives its owner the right to sell a given number of shares or some other asset at a specified price over a given period.

Eliminating all possible risk will ultimately

A(n) ________ gives the holder the right to sell a stated number of shares at a specified price for a limited time.

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements, Taxes, and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Filters

Exam 20: Corporate Risk Management

A purchaser of commodities who is completely hedged with forward contracts will profit if prices fall before the purchase is concluded.

Workers' compensation insurance protects employees income in case they are laid off or fired.

A seller of commodities who has entered into forward contracts with customers will profit if prices fall before the purchase is concluded.

Which of the following types of insurance does NOT involve a contract with an external party?

Which of the following is a consequence of transferring risk to an insurance company?

How can a currency futures contract be used as a hedge against a potentially dramatic appreciation of a foreign currency that a U.S. company is expecting to convert into U.S. dollars?

Which of the following variables is NOT part of the Black-Scholes option pricing model?

The writer or seller of an option is exposed to greater risk than the buyer of the option.

The writers of options and buyers of options have equal and opposite payoffs, minus commissions.

The long and short positions on forward contracts will always have equal and opposite payoffs.

A call option gives its owner the right to sell a given number of shares or some other asset at a specified price over a given period.

Eliminating all possible risk will ultimately

A(n) ________ gives the holder the right to sell a stated number of shares at a specified price for a limited time.

Getting Started-Principles of Finance

Firms and the Financial Market

Understanding Financial Statements, Taxes, and Cash Flows

Financial Analysis-Sizing up Firm Performance

Time Value of Money-The Basics

The Time Value of Money-Annuities and Other Topics

An Introduction to Risk and Return-History of Financial Market Returns

Risk and Return-Capital Market Theory

Debt Valuation and Interest Rates

Stock Valuation

Investment Decision Criteria

Analyzing Project Cash Flows

Risk Analysis and Project Evaluation

The Cost of Capital

Capital Structure Policy

Dividend Policy

Financial Forecasting and Planning

Working Capital Management

International Business Finance

Filters