1._____ Which of the following is NOT a benefit of risk management? a.Lower cash flow volatility. b.Lower cost of capital. c.Lower capital budget. d.Lower financial distress costs.

2._____ Which of the following is a bad reason for risk management? a.The firm could enjoy larger debt capacity and more interest tax shield. b.The firm could avoid high financial distress costs. c.The firm could lower borrowing costs using derivatives. d.The firm could maximize executive bonuses.

3._____ Which of the following are potentially viable risk responses? I.Outsource the production to transfer production-related risks. II.Buy employment practice liability insurance to pay damage awards to employees and legal fees. III.Invest in China to exploit the enormous growth potential despite the political risk and exchange rate risk. IV.Exit a market after a civil war breaks out. a.I. b.I and II. c.I, II and III. d.I, II, III and IV.

4._____ Which of the following statements is CORRECT? a.Futures contracts generally trade on an organized exchange and are marked to market daily. b.Goods are never delivered under forward contracts, but are almost always delivered under futures contracts. c.There are futures contracts for currencies but no forward contracts for currencies. d.Futures contracts don't have any margin requirements but forward contracts do.

5._____ Which of the following statements regarding our example of hedging interest rate risk using T-bond futures contract is most likely INCORRECT? a.Hedging interest rate risk of a firms bond issuance involves the short selling of T-bond futures contracts. b.The short selling of T-bond futures contracts will generate a profit if interest rate rises. c.If interest rate falls, though, the short selling of T-bond futures contracts will largely eliminate the potential gain in the firms bond issuance proceeds. d.Hedging interest rate risk using T-bond futures contracts is an example of accepting the risk.