Chap024 - Chapter 024 Risk Management True False Questions 1 A survey of the world's 500 largest companies found that almost all the companies use

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Chapter 024 Risk Management True / False Questions 1. A survey of the world's 500 largest companies found that almost all the companies use derivatives in some way to manage their risk. TRUE AACSB: Communication Abilities Bloom's: Knowledge Difficulty: Easy Learning Objective: 24-1 2. Risk policies are the same across companies. FALSE AACSB: Communication Abilities Bloom's: Knowledge Difficulty: Easy Learning Objective: 24-1 3. The Swap is the arrangement by two counterparties to exchange one stream of cash flow for another. TRUE AACSB: Communication Abilities Bloom's: Knowledge Difficulty: Easy Learning Objective: 24-1 4. Speculation is foolish unless you have reason to believe that the odds are stacked in your favor. TRUE AACSB: Communication Abilities Bloom's: Knowledge Difficulty: Medium Learning Objective: 24-1 24-1
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Chapter 024 Risk Management 5. If you are not better informed than the highly paid professionals in banks and other institutions, you should use derivatives for hedging, not for speculation. TRUE AACSB: Reflective Thinking Skills Bloom's: Application Difficulty: Easy Learning Objective: 24-2 6. Forward contracts are equivalent to tailor-made futures contracts. TRUE AACSB: Communication Abilities Bloom's: Knowledge Difficulty: Easy Learning Objective: 24-1 7. Costs of financial distress arise from disruption to normal business operations as well as from the effect that financial distress has on the firm's investment decisions. TRUE AACSB: Reflective Thinking Skills Bloom's: Application Difficulty: Medium Learning Objective: 24-1 8. The better the risk management policies, the less chance that the firm will incur numerous costs of distress. TRUE AACSB: Communication Abilities Bloom's: Knowledge Difficulty: Easy Learning Objective: 24-1 24-2
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Chapter 024 Risk Management 9. As a side benefit, better risk management decreases the firm's debt capacity. FALSE Bloom's: Application Difficulty: Medium Learning Objective: 24-1 10. Engaging itself in a swap contract, a firm might agree to make a series of regular payments in one currency in return for receiving a series of payments in another currency. TRUE AACSB: Reflective Thinking Skills Bloom's: Application Difficulty: Easy Learning Objective: 24-1 11. Hedging is foolish unless you have reason to believe that the odds are stacked against your favor. FALSE AACSB: Communication Abilities Bloom's: Knowledge Difficulty: Medium Learning Objective: 24-2 12. Regarding the profitability of options, it is impossible for a producer who sells put options to lose more than the price of the option premium. FALSE AACSB: Reflective Thinking Skills Bloom's: Application Difficulty: Easy Learning Objective: 24-1 24-3
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Chapter 024 Risk Management 13. Regarding the profitability of options, it is impossible for a producer who sells put options to lose more than the exercise price agreed on the option contract. TRUE
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This note was uploaded on 05/29/2011 for the course FINCANCE 430 taught by Professor Armour during the Spring '11 term at Clarkson University .

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Chap024 - Chapter 024 Risk Management True False Questions 1 A survey of the world's 500 largest companies found that almost all the companies use

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