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Homework answers / question archive / Copenhagen Business School FINANCE Corporate Quiz 8 Question1)What is the counterparty risk in an options contract? Counterparty risk is the risk that your counterparty will not fulfill their obligation

Copenhagen Business School FINANCE Corporate Quiz 8 Question1)What is the counterparty risk in an options contract? Counterparty risk is the risk that your counterparty will not fulfill their obligation

Finance

Copenhagen Business School

FINANCE Corporate

Quiz 8

Question1)What is the counterparty risk in an options contract?

  • Counterparty risk is the risk that your counterparty will not fulfill their obligation.
  • Counterparty risk is not an issue with an option contract.
  • Counterparty risk is the risk that the underlying asset is more volatile than what you assumed.
  • None of the above.

 

Question 2

What type of risk matters for an undiversified investor?

  • Market risk.
  • Idiosyncratic risk.
  • Default risk.
  • None of the above.

 

Question 3

Which of the following situations pose a problem for an insurance company with fairly priced insurance contracts:

  • Low risk customers choose not to acquire the insurance contract.
  • High risk customers choose to acquire the insurance contract.
  • Only mean risk customers choose to acquire the insurance contract.
  • None of the above.

 

Question 4

Bond investors can hedge (eliminate losses from) default risk in their portfolio by:

  • Only buying senior debt.
  • Only buying bonds in companies with a low leverage ratio.
  • Shorting stocks in the company that issued the bonds.
  • None of the above.

 

Question 5

Which of these investors will get their money back first in an event of default?

  • Senior bond holders.
  • Junior bond holders.
  • Equity holders.
  • None of the above.

 

Question 6

What is the role of having a margin requirement for futures trading?

  • The margin helps eliminate counterparty risk.
  • The margin ensures that futures are not trading for borrowed money.
  • The margin is a participation fee paid to the exchange.
  • None of the above.

 

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