1. A restaurant chain is hyper concerned about products in its supply chain that could be contaminated. The company'sCEO has hired a team to manage supply chain risk. The purchasing unit is given the objective of minimizing costs. The supply chain managers and purchasing managers have potentially conflicting objectives.

   True orFalse

2. Starbucks (SBUX) buys all of its coffee beans on the spot market. Managers believe that price increases and price decreases average out over time and hedging with forward contracts is too costly.

   True or False

3. Company X issues fixed income 30 year bonds with the following characteristics; If Company X is downgraded from AAA to A the coupon on the bond falls from 4% to 3%. This bond would be an example of Alternative Risk Transfer.

   True or False

4. An advantage of aggregating risks in a company is that it will incorporate natural hedges that exist. For example, a company may have one subsidiary that is long dollars and another that is short dollars. If the risks of the two subsidiaries are not aggregated, then this natural currency hedge for the company may not be identified.

   True or False

5. Insurance Company X has issued $1 billion of hurricane insurance. Management decides to lay-off part of this risk via reinsurance. They look for companies willing to insure claims above $500 million associated with its current portfolio of hurricane policies. The credit rating of the reinsurance company should not be of any concern to Insurance Company X. This is because insurance companies are well capitalized.

   True or False

6. In a rational enterprise risk management system risks are siloed and then managed separately. This facilitates risk management and makes overall management of risk more consistent with the objectives of management.

   True orFalse

7. Risk transfer is the same as risk elimination.

   True orFalse