Which of the following statements is NOT true for risks An event risk is an unexpected incident that reduces the firm value if and when it occurs An ongoing risk is a deviation from an expected outcome An event risk and an ongoing risk can be either bad news or good news An example of an event risk is an earthquake an example of a continuous risk is changes in foreign exchange rates Answer Which of the following statements is true for risk management Risk management is irrelevant in perfect markets Risk management is relevant in perfect markets Risk management is irrelevant in both perfect and imperfect markets Risk management is relevant in both perfect and imperfect markets Answer Risk management is NOT a value creating activity in a world in which there are transactions costs no taxes financial distress costs agency costs Answer When markets are imperfect, corporate risk management can increase the firms income tax payments over time protect the firm against risk at a higher cost than if investors did it themselves provide clearer information to investors about the firms core activities increase the firms financial distress and agency costs Answer Which of the following statements is true related to costs of protection against risk When markets are perfect, firms can buy protection against risk at a lower cost than the firms shareholders because firms have access to the wholesale market for risk protection instruments, an option also available to individual shareholders When markets are perfect, firms can buy protection against risk at a lower cost than the firms shareholders because firms have access to the wholesale market for risk protection instruments, an option that is not available to individual shareholders When markets are not perfect, firms can buy protection against risk at a lower cost than the firms shareholders because firms have access to the wholesale market for risk protection instruments, an option that is not available to individual shareholders When markets are not perfect, firms can buy protection against risk at a lower cost than the firms shareholders because firms have access to the wholesale market for risk protection instruments, an option also available to individual shareholders Answer The NPV equation can be adjusted to account for the risk of the investment Which of the following statement is true The riskier the investment, the lower the discount rate and the lower its NPV The riskier the investment, the higher the discount rate and the lower its NPV The riskier the investment, the higher the discount rate and the higher its NPV The riskier the investment, the lower the discount rate and the higher its NPV Answer Which of the following is NOT an example of corporate risk Risk that employees may leave the company Risk of a change in tax liability Risk of a lawsuit Risk of launching a new product Answer A risk management process can be broken down into five steps Which alternative reflects the correct order of this process Risk identification, risk prioritization, risk measurement, risk policy, and risk monitoring Risk identification, risk measurement, risk prioritization, risk policy, and risk monitoring Risk identification, risk policy, risk measurement, risk prioritization, and risk monitoring Risk identification, risk measurement, risk monitoring, risk prioritization, and risk policy Answer Stating who in the organization has the responsibility to make risk related decisions is part of Risk identification Risk prioritization Risk policy Risk monitoring Answer A typical firm faces four main sources of risk Which of the following is NOT one of these sources Business risk Financial risk Currency risk Country risk Answer Business risk can be broken down into three non overlapping second level risks Which of the following is NOT one of them Macro risk Technological risk Strategic risk Operational risk Answer Which of the following is NOT an example of operational risk Competition risk Commodity price risk Fiscal risk Legal risk Answer Which of the following is an example of financial risk Financial leverage risk Financing cost risk Liquidity risk Refinancing risk Answer Which are the main sources of strategic risk Competitors Employees Supply chain disruptions Defective products Answer Which of the following statements is correct for currency risk Exchange rate risk is caused by the market fluctuations in the exchange rates between two currencies in a regime of free floating rates, while exchange control risk is caused by unexpected changes in the fixed exchange rate between two currencies in a regime of managed float or exchange control Exchange rate risk and exchange control risk are both caused by the market fluctuations in the exchange rates between two currencies in a regime of free floating rates Exchange rate risk and exchange control risk are both caused by unexpected changes in the fixed exchange rate between two currencies in a regime of managed float or exchange control Exchange risk is caused by unexpected changes in the fixed exchange rate between two currencies in a regime of managed float or exchange control, while exchange control risk is caused by the market fluctuations in the exchange rates between two currencies Answer Which of the following represents an important risk based on severity High impact on the firms market value with high ability to control risk Moderate impact on the firms market value with low ability to control risk High impact on the firms market value with moderate ability to control risk Moderate impact on the firms market value with high ability to control risk Answer Which of the following represents a major risk based on severity Low impact on the firms market value with low ability to control risk High impact on the firms market value with moderate ability to control risk Moderate impact on the firms market value with moderate ability to control risk High impact on the firms market value with high ability to control risk Answer Which of the following represents a minor risk based on severity Moderate impact on the firms market value with moderate ability to control risk High impact on the firms market value with low ability to control risk High impact on the firms market value with high ability to control risk Moderate impact on the firms market value with High ability to control risk Answer Which of the following is NOT a characteristic that a firms risk policy should display Governance Corporate risk Aligning the interests of all stakeholders Value creation Answer

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Which of the following statements is NOT true for risks? An event risk is an unexpected incident that reduces the firm value if and when

Which of the following statements is NOT true for risks?
1. An event risk is an unexpected incident that reduces the firm value if and when it occurs.
2. An ongoing risk is a deviation from an expected outcome.
3. An event risk and an ongoing risk can be either bad news or good news.
4. An example of an event risk is an earthquake; an example of a continuous risk is changes in foreign-exchange rates.

Answer:______

Which of the following statements is true for risk management?
1. Risk management is irrelevant in perfect markets.
2. Risk management is relevant in perfect markets.
3. Risk management is irrelevant in both perfect and imperfect markets.
4. Risk management is relevant in both perfect and imperfect markets.

Answer:______

Risk management is NOT a value-creating activity in a world in which there are:
1. transactions costs.
2. no taxes.
3. financial distress costs.
4. agency costs.

Answer:______

When markets are imperfect, corporate risk management can:
1. increase the firms income tax payments over time.
2. protect the firm against risk at a higher cost than if investors did it themselves.
3. provide clearer information to investors about the firms core activities.
4. increase the firms financial distress and agency costs.

Answer:______

Which of the following statements is true related to costs of protection against risk?
1. When markets are perfect, firms can buy protection against risk at a lower cost than the firms shareholders because firms have access to the wholesale market for risk-protection instruments, an option also available to individual shareholders.
2. When markets are perfect, firms can buy protection against risk at a lower cost than the firms shareholders because firms have access to the wholesale market for risk-protection instruments, an option that is not available to individual shareholders.
3. When markets are not perfect, firms can buy protection against risk at a lower cost than the firms shareholders because firms have access to the wholesale market for risk-protection instruments, an option that is not available to individual shareholders.
4. When markets are not perfect, firms can buy protection against risk at a lower cost than the firms shareholders because firms have access to the wholesale market for risk-protection instruments, an option also available to individual shareholders.

Answer:______

The NPV equation can be adjusted to account for the risk of the investment. Which of the following statement is true?
1. The riskier the investment, the lower the discount rate and the lower its NPV.
2. The riskier the investment, the higher the discount rate and the lower its NPV.
3. The riskier the investment, the higher the discount rate and the higher its NPV.
4. The riskier the investment, the lower the discount rate and the higher its NPV.

Answer:______

Which of the following is NOT an example of corporate risk?
1. Risk that employees may leave the company
2. Risk of a change in tax liability
3. Risk of a lawsuit
4. Risk of launching a new product

Answer:______

A risk management process can be broken down into five steps. Which alternative reflects the correct order of this process?
1. Risk identification, risk prioritization, risk measurement, risk policy, and risk monitoring
2. Risk identification, risk measurement, risk prioritization, risk policy, and risk monitoring
3. Risk identification, risk policy, risk measurement, risk prioritization, and risk monitoring
4. Risk identification, risk measurement, risk monitoring, risk prioritization, and risk policy

Answer:______

Stating who in the organization has the responsibility to make risk-related decisions is part of?
1. Risk identification
2. Risk prioritization
3. Risk policy
4. Risk monitoring

Answer:______

A typical firm faces four main sources of risk. Which of the following is NOT one of these sources?
1. Business risk
2. Financial risk
3. Currency risk
4. Country risk

Answer:______

Business risk can be broken down into three non-overlapping second-level risks. Which of the following is NOT one of them?
1. Macro risk
2. Technological risk
3. Strategic risk
4. Operational risk

Answer:______

Which of the following is NOT an example of operational risk?
1. Competition risk
2. Commodity price risk
3. Fiscal risk
4. Legal risk

Answer:______

Which of the following is an example of financial risk?
1. Financial leverage risk
2. Financing cost risk
3. Liquidity risk
4. Refinancing risk

Answer:______

Which are the main sources of strategic risk?
1. Competitors
2. Employees
3. Supply chain disruptions
4. Defective products

Answer:______

Which of the following statements is correct for currency risk?
1. Exchange-rate risk is caused by the market fluctuations in the exchange rates between two currencies in a regime of free-floating rates, while exchange-control risk is caused by unexpected changes in the fixed exchange rate between two currencies in a regime of managed float or exchange control.
2. Exchange-rate risk and exchange-control risk are both caused by the market fluctuations in the exchange rates between two currencies in a regime of free-floating rates.
3. Exchange-rate risk and exchange-control risk are both caused by unexpected changes in the fixed exchange rate between two currencies in a regime of managed float or exchange control.
4. Exchange risk is caused by unexpected changes in the fixed exchange rate between two currencies in a regime of managed float or exchange control, while exchange-control risk is caused by the market fluctuations in the exchange rates between two currencies.

Answer:______

Which of the following represents an important risk based on severity?
1. High impact on the firms market value with high ability to control risk.
2. Moderate impact on the firms market value with low ability to control risk.
3. High impact on the firms market value with moderate ability to control risk.
4. Moderate impact on the firms market value with high ability to control risk.

Answer:______

Which of the following represents a major risk based on severity?
1. Low impact on the firms market value with low ability to control risk.
2. High impact on the firms market value with moderate ability to control risk.
3. Moderate impact on the firms market value with moderate ability to control risk.
4. High impact on the firms market value with high ability to control risk.

Answer:______

Which of the following represents a minor risk based on severity?
1. Moderate impact on the firms market value with moderate ability to control risk.
2. High impact on the firms market value with low ability to control risk.
3. High impact on the firms market value with high ability to control risk.
4. Moderate impact on the firms market value with High ability to control risk.

Answer:______

Which of the following is NOT a characteristic that a firms risk policy should display?
1. Governance
2. Corporate risk
3. Aligning the interests of all stakeholders
4. Value creation

Answer:______