Suggested Solutions for Tutorial 12

Suggested Solutions for Tutorial 12 - 1 Suggested Solutions...

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1 Suggested Solutions for Tutorial 12 Please note that following suggested solutions are only very basic points and you need to read the textbook and other reference materials for better understanding. 1. Risk management is important to the long-term survival of a corporation. (a) Define and explain the nature of risk. risk is the possibility or probability that something may occur that is unexpected, not anticipated risk adds uncertainty to the business management and forecasting processes a business is exposed to both operational risks and financial risks operational risks impact upon the normal day-to-day functions of a business financial risks affect business cash flows and the value of balance sheet assets and liabilities (b) What is the purpose of risk management? to ensure an organisation is aware of the risks associated with all aspects of its business operations to ensure personnel consider the risk outcomes that derive from their business decisions to establish robust risk management objectives, policies, procedures and strategies that result in all risk exposures being identified, measured and managed to mitigate potential negative operational and financial impacts of risk to protect personnel 7. The primary purpose of a derivative product is the management of a risk exposure. Explain how a derivative contract achieves this risk management function.
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This note was uploaded on 08/30/2011 for the course AFF 1000 taught by Professor Chalmers during the Three '11 term at Monash.

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Suggested Solutions for Tutorial 12 - 1 Suggested Solutions...

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