Study
Homework Help
Writing
Blog
Pricing
Commerce and BusinessbackBusinessbackCorporate Finance/Financial ManagementbackFundamentals of Corporate FinancebackPractice Set 2491back

Enterprise Risk Management

This question bank verified by Studydeets

Questions Bank

All Questions
Filter by:
Question 1
Free
Multiple Choice

Farmer Jones raises several hundred acres of corn and would suffer a significant loss should the price of corn decline at harvest time.Which one of the following would he be doing if he purchased financial securities to offset this price risk?

Choose correct answer/s
A

abating

B

deriving

C

hedging

D

forwarding

E

manipulating

Check answer
Question 2
Free
Multiple Choice

The value of a stock option is dependent upon the value of the underlying stock.Thus,a stock option is a:

Choose correct answer/s
A

forward agreement.

B

derivative security.

C

mezzanine asset.

D

contingent security.

E

junior security.

Check answer
Question 3
Free
Multiple Choice

Farmer Mac owns a large orange grove in Florida.The value of his business is directly related to the price of oranges.Which one of the following is a graphical representation of this price-value relationship?

Choose correct answer/s
A

exchange line

B

net present value profile

C

risk profile

D

market line

E

return grid

Check answer
Question 4
Free
Multiple Choice

Farmer Ted planted 200 acres in wheat this year.The weather has been perfect and he expects to harvest a record crop within the next two weeks.At present,he has no storage facilities and therefore must sell his crop as soon as it is harvested.Which one of the following risks is he facing because he must sell his crop at whatever the market price is at harvest time?

Choose correct answer/s
A

futures risk

B

volatility exposure

C

surplus risk

D

transactions exposure

E

translation exposure

Check answer
Question 5
Free
Multiple Choice

For years,your family has operated a business that produces lawn mowers.Over the years,the industry has progressed and new mass production techniques have been developed.However,your firm cannot afford this new technology,nor can you compete against those firms that can.Thus,the family has decided to close its facility at the end of the year.Which one of the following describes the risks to which your family's firm succumbed?

Choose correct answer/s
A

forward risk

B

volatility exposure

C

economic exposure

D

transactions exposure

E

translation risk

Check answer
Question 6
Multiple Choice

This morning a cereal maker agreed to pay a farmer $4.40 a bushel for 5,000 bushels of wheat that the farmer will ship to the factory four months from now.What is this legally binding agreement called?

Choose correct answer/s
A
forward contract
B
spot contract
C
swap
D
exchange
E
floating contract
To unlock the question
Question 7
Multiple Choice

A graph depicting the gains and losses a seller of a forward contract would earn at various market prices is referred to as a:

Choose correct answer/s
A
risk profile.
B
payoff profile.
C
risk offer line.
D
scatter plot.
E
risk-return graph.
To unlock the question
Question 8
Multiple Choice

By definition,which one of the following contracts is marked to the market on a daily basis?

Choose correct answer/s
A
forward contract
B
spot contract
C
hedge
D
swap
E
futures contract
To unlock the question
Question 9
Multiple Choice

Southern Groves raises tangerines.To hedge its risk,the firm trades in the orange futures market.This process is known as:

Choose correct answer/s
A
secondary trading.
B
open trading.
C
open-hedging.
D
cross-hedging.
E
perfect-hedging.
To unlock the question
Question 10
Multiple Choice

The National Bank has an agreement with The Foreign Bank to exchange 500,000 U.S.dollars for 380,000 Euros on the first day of each of the next 3 calendar quarters.This agreement is best described as a(n):

Choose correct answer/s
A
floating exchange.
B
spot trade.
C
option.
D
futures contract.
E
swap contract.
To unlock the question
Question 11
Multiple Choice

An agreement that grants its owner the right,but not the obligation,to buy or sell a specific asset at a specific price for a set period of time is called a(n) _____ contract.

Choose correct answer/s
A
option
B
forward
C
futures
D
swap
E
spot
To unlock the question
Question 12
Multiple Choice

Sue recently purchased a right to buy 100 shares of ABC stock for $27.50 a share if she so chooses at any time within the next four months.Which one of the following does Sue own?

Choose correct answer/s
A
futures contract
B
call option
C
put option
D
straddle
E
strangle
To unlock the question
Question 13
Multiple Choice

Steve recently sold an option that requires him to purchase 100 shares of Omega stock at $40 a share should the option owner decide to exercise the option.What type of option contract did Steve sell?

Choose correct answer/s
A
futures option
B
call option
C
put option
D
straddle
E
strangle
To unlock the question
Question 14
Multiple Choice

Which one of the following can a firm do if it effectively manages its financial risks?

Choose correct answer/s
A
eliminate all the risks faced by the firm
B
totally eliminate all financial risks
C
reduce the price volatility it faces
D
guarantee the firm's financial success
E
avoid all long-term financial risks
To unlock the question
Question 15
Multiple Choice

A hedge between which two of the following firms is most apt to reduce each firm's financial risk exposure?

Choose correct answer/s
A
wheat farmer and bakery
B
oil producer and coal miner
C
wheat grower and pharmaceutical firm
D
pastry bakery and cotton farmer
E
shoe manufacturer and coat manufacturer
To unlock the question
Question 16
Multiple Choice

Which one of the following statements is correct in relation to a firm's short-run financial risk?

Choose correct answer/s
A
Short-run financial risk results from permanent changes in prices due to new technology.
B
A financially sound firm can become financially distressed as the result of its short-run exposure to financial risk.
C
Each segment of a business should be responsible for hedging its own short-run financial risk.
D
Short-run financial risk is defined as temporary price changes which result directly from natural disasters, such as tornadoes, droughts, and floods.
E
Thus far, hedging techniques have been unsuccessful in reducing short-run financial risk.
To unlock the question
Question 17
Multiple Choice

Long-run financial risk:

Choose correct answer/s
A
can frequently be hedged on a permanent basis.
B
is best hedged on a division by division basis within a conglomerate.
C
is related more to near-term transactions than to advancements in technology.
D
generally results from changes in the underlying economics of a business.
E
can generally be hedged such that the financial viability of a firm is protected.
To unlock the question
Question 18
Multiple Choice

By hedging financial risk,a firm can:

Choose correct answer/s
A
ensure a steady rate of return for its shareholders.
B
eliminate price changes over the long-term.
C
ensure its own economic viability.
D
gain time to adapt to changing market conditions.
E
eliminate its exposure to price increases in raw materials.
To unlock the question
Question 19
Multiple Choice

The seller of a forward contract:

Choose correct answer/s
A
is obligated to make delivery and accept the forward price.
B
has the option of making delivery and receiving the greater of the spot price or the contract price.
C
has the option of either making delivery or accepting delivery.
D
is obligated to take delivery and pays the lower of the spot market price or the contract price.
E
is obligated to take delivery and pay the forward price.
To unlock the question
Question 20
Multiple Choice

A bakery generally enters into a forward contract in wheat as a:

Choose correct answer/s
A
hedger.
B
speculator.
C
spot trader.
D
broker.
E
spectator.
To unlock the question