1) Which of the following statements is FALSE?

A. Not all insurable risks have a beta of zero. Some risks, such as hurricanes and earthquakes, create losses of tens of billions of dollars and may be difficult to diversify completely.

B. Because insurance provides cash to the firm to offset losses, it can reduce the firm's need for external capital and thus reduce issuance costs.

C. When a firm buys insurance, it transfers the risk of the loss to an insurance company. The insurance company charges an upfront premium to take on that risk.

D. By its very nature, insurance for non-diversifiable hazards is generally a positive beta asset; the insurance payment to the firm tends to be larger when total losses are low and the market portfolio is high.

2) A currency forward contract specifies all of the following EXCEPT:

A. the amount of currency to exchange.

B. the delivery date on which the exchange will take place.

C. the currencies to be exchanged.

D. the spot exchange rate.

Consider the following equation: Sx *CEC (.rc) (+75) -E.GR The termic in this equation is: the appropriate cost of capital from the standpoint of a foreign investor the appropriate cost of capital from the standpoint of a U.S. Investor the risk-free rate for a U.S. Investor the risk-free rate for a foreign investor OO