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Bellevue University MBA 620 Quiz 5 1)All of the following are commonly considered as derivatives, except which one? a

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Bellevue University

MBA 620

Quiz 5

1)All of the following are commonly considered as derivatives, except which one?

a.            option contract

b.            stock contract

c.             bond contract

d.            forward contract

e.            futures contract

f.             swap contract

g.            both a & f

h.            both b & c

i.              none of the above, i.e. they are ALL commonly considered as derivatives.

2.            In financial risk management, hedging is commonly defined as which of the following?

a.            assuming risk in order to profit from a change in a future rate or price.

b.            using financial instruments to reduce risk associated with uncertain future cash flows. Page #776

c.             speculating in financial markets

d.            calculating collected balances to a date different from the date the transaction occurred.

e.            lending based on the pledging of accounts receivable and inventory as collateral.

3.            According to the text, the most common type of swap is

a.            a currency swap

b.            an oil for gas futures swap

c.             a fixed for floating (a.k.a. floating for fixed) interest rate swap

d.            a land swap

e.            a commodity swap

f.             a rookie card swap

4.            To implement Enterprise Risk Management (ERM) principles and practices, a firm should also assess and evaluate the risk exposures of the firm’s suppliers and the financial institutions the firm works with.

a.            true

b.            false

5.            The owner of which of the following financial contracts has a right to act, but not an obligation to act?

a.            option contract

b.            forward contract

c.             futures contract

d.            swap contract

e.            none of the above, i.e. they ALL impose obligations on the owner to act.

6.            Foreign exchange risk exposure is only relevant if your firm is a multinational firm with facilities in multiple countries.

a.            true b. false

 

7.            If your manager wanted to see a graphical presentation of how the company’s overall value changes as the price of certain financial variables change, you would most likely prepare a:

a.            a pie chart or graph

b.            a bar chart or graph

c.             a risk profile chart or graph

d.            an aging schedule chart or graph

e.            a market value added chart or graph

8.            In risk management, a forward contract may provide for a better hedge arrangement for a firm than a futures contract because

a.            the forward contract terms are standardized b. the forward contract terms are customized

c.             the futures contract terms are customized

d.            the forward contract involves a right rather than an obligation

e.            the futures contract involves a right rather than an obligation

9.            Which of the following would generally contribute to lowering a firm’s insurance premium costs?

a.            implementing risk/loss control techniques

b.            increasing retention levels

c.             increasing deductibles d. all of the above

e. a & c only

10.          Which of the following is a disadvantage of using standardized financial contracts as a risk management tool?

a.            they are typically cheaper to enter into, since they are standardized

b.            they are typically more expensive than customized contracts

c.             they are typically more liquid, and thus provide the potential to sell out of the position.

d.            their specifications may not provide a good match to the actual risk exposure being hedged.

e.            none of the above, i.e. all of the above are either advantages or totally irrelevant to this question.