Answer all
23. In the modern world, it's common to find companies using derivatives for risk management. The following are theoretical arguments against the use of derivatives to manage risks. Which one is not a direct objection to their use? A. Hedging using derivatives requires specialized skills, knowledge and infrastructure, besides involving massive data acquisition and processing B. Aggressive hedging may distract a company's management from its core business leading to low productivity C. Risk managers may prioritize personal interests at the expense of the shareholders D. Trading in derivatives comes with compliance costs, strict accounting regulations and compulsory financial disclosures that can reveal key business strategies to competitors 24. A certain company (predator) harbors an ambitious plan to launch a takeover bid and acquire one of its fastest growing competitors (target company) in two years' time. The company's top brass are worried that the target company's stock price will rise in the months leading to the takeover which might, in turn, increase the amount the company will have to pay for the acquisition. As the company's risk manager, which of the following business strategies would work best in regard to the equity price risk? A. Launching the takeover bid earlier than planned B. Advise the company to closely guard the takeover plans to avoid generating too much furor among investors C. Advise the company to purchase stock index futures D. Engage the target company in negotiation talks starting immediately 25. Which of the following statements best describes the concept of hedging in risk management? A. Buying an asset to offset a decline in value of another asset B. Holding an asset that appreciates in value to offset the decrease in the value of another asset C. Selling a loss-making asset and replacing it with a profitable one D. Holding an offsetting position in an asset or portfolio whose value we expect to move in line with market changes 26. An international construction company places a bid for a major construction project. The company fears that currency fluctuation during the evaluation of bids may make the project more costly and reduce the profit margin. Which of the following actions do you think can reduce this risk? A. Negotiating the price of construction materials with sellers in advance B. Purchasing construction materials in advance with the option to sell them if the bid turns out unsuccessful C. Getting into a currency futures contract D. Adding a risk premium to the bid amount
