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

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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 Jul 17, 2021

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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