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Market risk is
A) the risk of bad business strategy or management decisions being made
B) the risk that a company will be unable to meet its financial obligations
C) the risk of not being able to close out your position quickly and at a fair price
D) the risk of prices going up or down
E) also known as inflation risk
Step by step
Solved in 4 steps
- Liquidity risk is A) the risk of bad business strategy or management decisions being madeB) the risk that a company will be unable to meet its financial obligationsC) the risk of not being able to close out your position quickly and at a fair priceD) the risk of prices going up or downE) also known as inflation riskPurchasing Power Risk is A) the risk of bad business strategy or management decisions being madeB) the risk that a company will be unable to meet its financial obligationsC) the risk of not being able to close out your position quickly and at a fair priceD) the risk of prices going up or downE) also known as inflation riskInflation, recession, and high interest rates are economic events which are characterized as: A. Company-specific risk that can be diversified away. B. Systematic risk that can be diversified away. C. Diversifiable risk. D. Market risk. E. Unsystematic risk that can be diversified away.
- Which of the following is NOT related to (or contributes to) business risk? Remember that a company's activities have an effect on its business risk. Sales price variability. The extent to which operating costs are fixed. Demand variability. O Input price variability. O The extent to which interest rates on the firm's debt fluctuate.5) A company's stock price jumped when it announced that its revenue had decreased because of the quality issues of its products. This is an example of ________.A) market riskB) unsystematic riskC) systematic riskD) undiversifiable riskQUESTION 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?
- 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.Why might a manager intentionally classify a trading security as an available-for-sale security? Select one: a. The manager may wish to prevent an increase in value from being reported on the income statement. b. The manager may wish to prevent a decline in value from being reported in shareholders' equity. c. The manager may wish to prevent an increase in value from being reported in shareholders' equity. d. The manager may wish to prevent a decline in value from being reported on the income statement.1. Refers to the inability of the business to meet its obligations as they mature on account of insufficient resources. A. Default risk B. Interest-rate risk C. Purchasing power risk D. Liquidity risk 2. A type of risk that relates to changes in the prime interest rate which have significant effects on the cost of money but not directly on the liquidity of the business. A. Financial risk B. Interest-rate risk C. Purchasing power risk D. Liquidity risk 3. Refers to the changes in the conditions and those variables affecting the cost of capital, capital structure and also management decisions made to directly influence the market price of a stock. A. Financial risk B. Interest-rate risk C. Purchasing power risk D. Liquidity risk
- Explain how managers should not focus on the current stock value because doing so will lead to an overemphasis on short-term profits at the expense of long-term profits.Which failures in risk management systems have had catastrophic consequences in financial markets? Illustrate with exampleswhat happens if a company doesn't manage risk ?