Session:20 Risk Management and the Financial Manager
Multiple Choice
Principles of Finance | Leadership Development – Micro-Learning Session
Rice University 2020 | Michael Laverty, Colorado State University Global Chris Littel, North Carolina State University| https://openstax.org/details/books/principles-finance
1 . Which of the following does a financial manager want to do to maximize the value of the firm?
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Decrease the speed of money coming into the firm
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Speed up cash going out and slow down cash coming in
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Decrease the riskiness of cash inflows and cash outflows
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Increase the volatility and speed of cash going out of the firm
2 . In finance, risk is ________.
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the same thing as profit
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ignored because it is inevitable
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thought of as uncertainty or unpredictability
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something that financial managers should strive to increase and maximize
3 . American Jeans Corp. purchases a cotton farm. The cotton grown on the farm will be used to make denim cloth for the company’s jeans. This is an example of ________.
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striking a price
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vertical integration
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a forward contract
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an American option
4 . The price that a holder of an option pays to buy the underlying asset when exercising a call option is known as ________.
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the strike price
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the maturity price
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the exchange price
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the underlying premium
5 . Which of the following gives the holder the right, but not the obligation, to purchase an underlying asset?
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A call option
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A forward contract
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A European put option
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An American put option
6 . An American option allows the holder to ________.
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exercise the option only on the expiration date
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exercise the option at any time up to and including the expiration date
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sell stocks, and a European option allows the holder to purchase stocks
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purchase stocks, and a European option allows the holder to purchase bonds
7 . The holder of a(n) ________ has the right to buy and the holder of a(n) ________ has the right to sell an underlying asset.
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call option; put option
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put option; call option
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American option; European option
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European option; American option
8 . The three main categories of foreign exchange risk a company faces are ________.
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economic risk, business risk, and exposure risk
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exposure risk, fluctuation risk, and forward risk
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transaction risk, translation risk, and economic risk
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appreciation risk, depreciation risk, and duplication risk
9 . In January, the exchange rate between the South Korean won and the US dollar was KWN1,100=USD1
. Three months later, the exchange rate was KWN1,200=USD1
. This means that ________.
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the Korean won appreciated relative to the US dollar
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the Korean won depreciated relative to the US dollar
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the US dollar depreciated relative to the Korean won
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both the Korean won and the US dollar appreciated
10 . In January, the exchange rate between the South Korean won and the US dollar was KWN1,100=USD1
. Three months later, the exchange rate was KWN1,200=USD1
. This means that ________.
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it will cost US companies more to purchase raw materials from South Korea
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it will cost Korean companies more to purchase raw materials from the United States
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US companies that sell their products in South Korea will find their revenue has increased
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Korean companies that sell their products in the United States will find that their revenue has decreased
11 . A foreign exchange forward contract ________.
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is a standardized contract that is inflexible
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occurs when a company swaps its translation exposure for transaction exposure
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is a contractual agreement between two parties to exchange a specified amount of currencies on a future date
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states the date on which a trade will take place, but the price for the trade will be determined at the time the trade occurs
12 . Which of the following is a measure of interest rate risk?
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LIBOR
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Duration
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Translation exposure
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Contract inflexibility
13 . A swap occurs when ________.
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a company exchanges obligations with another company to make specified payment streams
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a company purchases commodities from a company in another country, exposing it to both commodity and currency risk
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a company chooses a local supplier over an international supplier to avoid currency exposure
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a company chooses a foreign supplier so that its commodity risk will be offset by its currency risk