chap023 - Chapter 023 Risk Management: An Introduction to...

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Chapter 023 Risk Management: An Introduction to Financial Engineering Multiple Choice Questions 1. The process of lowering a firm's exposure to rate or price fluctuations is called: a. abating. b. deriving. C . hedging. d. forwarding. e. manipulating. SECTION: 23.1 TOPIC: HEDGING TYPE: DEFINITIONS 2. A financial asset that represents a claim to another financial asset is called a(n): a. forward agreement. B . derivative security. c. mezzanine asset. d. contingent security. e. junior security. SECTION: 23.1 TOPIC: DERIVATIVE SECURITY TYPE: DEFINITIONS 3. A plot showing how the value of a firm is affected by changes in prices or rates is called a(n): a. exchange line. b. net present value profile. C . risk profile. d. scatter plot. e. return grid. SECTION: 23.2 TOPIC: RISK PROFILE TYPE: DEFINITIONS 23-1
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Chapter 023 Risk Management: An Introduction to Financial Engineering 4. Short-run financial risk arising from the need to buy or sell at uncertain prices or rates in the near future is called: a. futures risk. b. volatility exposure. c. economic risk. D . transactions exposure. e. translation exposure. SECTION: 23.2 TOPIC: TRANSACTIONS EXPOSURE TYPE: DEFINITIONS 5. Long-term financial risk arising from permanent changes in prices or other economic fundamentals is called: a. forward risk. b. volatility exposure. C . economic exposure. d. transactions exposure. e. translation risk. SECTION: 23.2 TOPIC: ECONOMIC EXPOSURE TYPE: DEFINITIONS 6. A(n) _____ contract is a legally binding agreement between two parties calling for the sale of an asset or product in the future at a price agreed upon today. A . forward b. spot c. swap d. exchange e. floating SECTION: 23.3 TOPIC: FORWARD CONTRACT TYPE: DEFINITIONS 23-2
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Chapter 023 Risk Management: An Introduction to Financial Engineering 7. A plot showing the gains and losses that will occur on a contract as the result of unexpected price changes is called a: a. risk profile. B . payoff profile. c. risk offer line. d. scatter plot. e. risk-return graph. SECTION: 23.3 TOPIC: PAYOFF PROFILE TYPE: DEFINITIONS 8. A forward contract with a marking to market feature is called a(n) _____ contract. a. floating b. spot c. option d. swap E . futures SECTION: 23.4 TOPIC: FUTURES CONTRACT TYPE: DEFINITIONS 9. Hedging an asset with contracts written on a closely related, but not identical, asset is called: a. secondary trading. b. open trading. c. open-hedging. D . cross-hedging. e. perfect-hedging. SECTION: 23.4 TOPIC: CROSS-HEDGING TYPE: DEFINITIONS 23-3
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Chapter 023 Risk Management: An Introduction to Financial Engineering 10. An agreement by two parties to exchange specified cash flows at specified intervals in the future is called a(n) _____ contract. a. floating b. spot c. option d. futures E . swap SECTION: 23.5 TOPIC: SWAP CONTRACT TYPE: DEFINITIONS 11. An agreement that gives the 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. A
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This note was uploaded on 03/23/2011 for the course ECON 202098 taught by Professor Sameer during the Spring '11 term at University of Jordan.

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chap023 - Chapter 023 Risk Management: An Introduction to...

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