Topic 2 Corporate Risk Management A Primer.pdf

G default risk are privately traded between a bank

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contain credit risk by either of the counterparties in the transaction (e.g., default risk). are privately traded between a bank and a firm. cover only certain underlying assets and are standardized. can be customized to suit the firm's risk management needs. When evaluating methods to hedge operational and financial risks, including pricing, foreign currency, and interest rate risk, which of the following risks primarily pertain to the income statement? Hedging operational risk I. Hedging financial position risk II. Both I and II. II only. Neither I nor II. I only.
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Question #4 of 5 Question ID: 495058 A) B) C) D) Question #5 of 5 Question ID: 495056 A) B) C) D) Taylor Lawson is giving a presentation on the differences between static and dynamic hedging strategies. Which of the following statements is correct regarding these two hedging strategies? A static hedging strategy recognizes that the attributes of the underlying risky position may change with time. A static hedging strategy is a complex process in which the risky investment position is initially determined and an appropriate hedging vehicle is used to match that position as close as possible and for as long as required. Significantly more time and monitoring efforts are required with a dynamic hedging strategy compared to a static hedging strategy. A dynamic hedging strategy is a more simple process than a static hedging strategy. Abe Osbourne is a risk analyst who is evaluating the advantages and disadvantages of hedging risk exposures. Which of the following statements does not reflect an advantage of hedging? Hedging through the use of derivatives instruments such as swaps and options may be cheaper than purchasing an insurance policy. Hedging may decrease the variability of the firm's earnings due to the difference between accounting earnings and cash flows. Hedging may allow management to control its financial performance to meet the requirements of the board of directors. Hedging may result in operational improvements within a firm.
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