1. The intrinsic value of an option is the:

Multiple Choice

a) Value related to the time to expiration.

b) Value when the option is initially written.

c) Value of the underlying asset.

d) Arbitrage value.

e) Lower bound of the option's value.

2. Which one of the following statements concerning risk is correct?

Multiple Choice

a) An international firm has less exchange rate risk than a national firm.

b) A firm can lower its financial risk by lengthening the term of its debt.

c) The financial risk of a firm is NOT affected by the capital structure of that firm.

d) The goal of financial engineering is to totally eliminate the financial risk of a firm.

e) A firm can reduce its financial risk by combining various types of operations.