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Corporate Finance - Berk DeMazro - Chapter 30 - Risk Management questions with actual answers.
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Corporate Finance - Berk DeMazro - Chapter 30 - Risk Management questions with actual answers.
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Corporate Finance - Berk DeMazro -Chapter 30 - Risk Management
questions with actual answers.
actuarially fair ANS -When the NPV from selling insurance is zero because the price of insurance equals
the present value of the expected payment.
basis risk ANS -The risk that the value of a security used to hedge an exposure will not track that
exposure perfectly.
business interruption insurance ANS -A type of insurance that protects a firm against the loss of
earnings if the business is interrupted due to fire, accident, or some other insured peril.
business liability insurance ANS -A type of insurance that covers the costs that result if some aspect of a
business causes harm to a third party or someone else's property.
cash-and-carry strategy ANS -A strategy used to lock in the future cost of an asset by buying the asset
for cash today, and storing (or "carrying") it until a future date.
covered interest parity equation ANS -States that the difference
between the forward and spot exchange rates is related to the
interest rate differential between the currencies.
currency forward contract ANS -A contract that sets a currency exchange rate, and an amount to
exchange, in advance.
currency timeline ANS -Indicates time horizontally by dates (as in a standard timeline) and currencies
vertically (as in dollars and euros).
daily settlement ANS -A procedure in which the margin used to secure a position in a financial contract
is adjusted at the end of each day according to the change in the contract's market value.
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