FIN-320 4-2 Case Study

What is a systematic risk? Multiple choice question. It is a risk that affects only one or a few assets. It is a risk that is caused by the failure of the internal control system of a corporation. It is a risk that pertains to a large number of assets, each to a greater or lesser extent. It is a risk that increases in a systematic, gradual fashion.

How to avoid and prevent the unique Risks for the Ingersoll Rand company?

What should a company do when the cost of eliminating the conditions that create an IT risk exceeds the potential losses that may occur? a. Accept the risk b. Reduce the risk c. Avoid risk d. Transfer the risk

Systematic risk evaluates the probability and extent of negative consequences to the larger body. For example, the government has a record of intervening in the event of a probable bank failure; the government’s larger concern is the negative impact on bank customers. Some call this a government bailout. Research a recent government bailout and explain why the government felt it was necessary. What risks do you think the government had to consider in making its decision?

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Greater role assumed by government in bailing out financial intermediaries – too big to fail concepts and its effect on adverse section and moral hazard.

Recession, inflation, and high interest rates are economic events that are best characterized as being a. company-specific risk factors that can be diversified away. b. among the factors that are responsible for market risk. c. risks that are beyond the control of investors and thus should not be considered by security analysts or portfolio managers. d. irrelevant except to governmental authorities like the Federal Reserve. e. systematic risk factors that can be diversified away.

Financial intermediaries (FIs) can offer savers a safer, more liquid investment than a capital market security, even though the intermediary invests in risky illiquid instruments because: a. FIs can diversify away some of their risk. b. FIs closely monitor the riskiness of their assets. c. the federal government requires them to do so. d. FIs can diversify away some of their risk and closely monitor the riskiness of their assets. e. FIs can diversify away some of their risk and the federal government requires them to do so. Clear my choice

Question 6: How can a firm assess risk and how can internal controls systems help minimize the financial risk?

Understanding risks that affect projects and the impact of risk consideration WSP Inc. is involved in a wide range of unrelated projects. The company will pursue any project that it thinks will create value for its stockholders. Consequently, the risk level of the company's projects tends to vary a great deal from project to project. If WSP Inc. does not risk-adjust its discount rate for specific projects properly, which of the following is likely to occur over time? Check all that apply. The firm will increase in value. The firm could potentially reject projects that provide a higher rate of return than the company should require. The firm's overall risk level will increase. Generally, a positive correlation exists between a project's returns and the returns on the firm's other assets. If this correlation is stand-alone risk will be a good proxy for within-firm risk. Consider the case of another company. Turnkey Printing is evaluating two mutually exclusive projects. They both require…

Describe how underinvestment and asset substitution can destroy firm valueand how risk management can mitigate these problems.

how a firm might use a hedging to reduce risk in its business? please include examples

9.1 q2- Which of the following is NOT a type of news that contributes to unsystematic risk? Select one: a. Industry-specific news. b. Company-specific news. c. Market-wide news. d. None of the above.  (In other words, ALL of the above types of news contribute to unsystematic risk.)

What reforms to the financial system might reduce its exposure to systemic risk?

Because systematic risks are market-wide effects, they are sometimes called Blank______. Multiple choice question. business-specific risks residual risks diversifiable risks market risks

what happens if a company doesn't manage risk ?

Hedging is a risk management strategy that is used in limiting or offsetting probability of loss from fluctuations in the prices of commodities, currencies, or securities. In effect, hedging is a transfer of risk without buying insurance policies.   REQUIRED: Discuss the importance of hedging to the financial risk manager Are there any downside to hedging?