SESSION:20 Risk Management and the Financial ManagerReview Questions

Session:20 Risk Management and the Financial Manager

Review Questions

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 . What is the difference between someone using a derivative security to hedge risk and someone using a derivative security to speculate?

2 . Explain how vertical integration may be used as a method of hedging against commodity price risk.

3 . What is the difference between a forward contract and a futures contract?

4 . You are considering purchasing a call option to purchase Mexican pesos in three months with a strike price of MXN 20/USD. The premium for this call option is MXN 2. Show the payoff you will receive at various prices in a diagram.

5 . You are considering writing a call option to purchase Mexican pesos in three months with a strike price of MXN 20/USD. The premium for this call option is MXN 2. Show the payoff you will receive at various prices in a diagram.

6 . Why are options considered to be a “zero-sum game”?

Session:20 Risk Management and the Financial Manager

Review Questions

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