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5.Exporters face currency exchange rate risk when their home currency
is _____________________ because the profit in foreign currency can be exchanged for a
smaller amount of home currency.
6. Futures contracts can be used to ________________ against commodity price risk.
7. The uncertainty concerning the price of grain (input) faced by a food company (Nestle) that
has agreed to deliver cereal (output) at a fixed price to a supermarket chain (Tesco) six months
later is an example of _______________________.
8. Depositors face interest rate risk when interest rate __________________ and this adverse
situation brings about a smaller amount of interest income.
10. Importers face currency exchange rate risk when their home currency is _______________
because a bigger amount of home currency is needed to purchase the foreign currency.
11. Bond issuers face interest rate risk when market interest rate _____________________
15. Borrowers face interest rate risk when interest rate ____________________ and this
adverse situation brings about a higher cost of borrowing.
16. Sellers face commodity price risk when there is a __________________ in commodity
price
2. When two risks are perfectly and negatively correlated, the combination of these risks
provides a ___________________ position.
3.If some risks are __________________correlated, the combination of these risks can reduce
the overall risk of the business entity significantly.
6. MAS spends millions each year on jet fuel. The airline also has a significant liability loss
exposure. It can retain a large portion of liability loss exposure if the fuel cost is low, or it can
pay high fuel cost if its retained liability loss is low. The airline cannot, however, absorb both
high fuel cost and high liability loss. MAS’s insurer designed an insurance program with
a ____________________ where the insurer will pay only if both contingencies (high fuel cost
and high liability loss) occur.
7. Risk mapping and catastrophe modelling are risk _________________tools.
8.A _____________________ provides for the payment only if two specified losses occur.
9. An __________________ is a treatment program that combines the coverage for pure and
speculative risks in the same contract.
10. As long as all risks are not perfectly and __________________ correlated, the combination
of these risks can reduce the overall risk of the business entity.