FIN 4610 23 20
Farmer Jones raises several hundred acres of corn and would suffer a
significant loss should the price of corn decline at harvest time. Which one of
the following would he be doing if he purchased financial securities to offset
this price risk?
A.abating
B.deriving
C.hedging
D.forwarding
E.manipulating - correct answer ✔C.hedging
The value of a stock option is dependent upon the value of the underlying
stock. Thus, a stock option is a:
A.forward agreement.
B.derivative security.
C.mezzanine asset.
D.contingent security.
E.junior security. - correct answer ✔B.derivative security.
Farmer Mac owns a large orange grove in Florida. The value of his business
is directly related to the price of oranges. Which one of the following is a
graphical representation of this price-value relationship?A.exchange line
B.net present value profile
C.risk profile
D.market lineE.return grid - correct answer ✔C.risk profile
, Farmer Ted planted 200 acres in wheat this year. The weather has been
perfect and he expects to harvest a record crop within the next two weeks. At
present, he has no storage facilities and therefore must sell his crop as soon
as it is harvested. Which one of the following risks is he facing because he
must sell his crop at whatever the market price is at harvest time?
A.futures risk
B.volatility exposure
C.surplus risk
D.transactions exposure
E.translation exposure - correct answer ✔D.transactions exposure
For years, your family has operated a business that produces lawn mowers.
Over the years, the industry has progressed and new mass production
techniques have been developed. However, your firm cannot afford this new
technology, nor can you compete against those firms that can. Thus, the
family has decided to close its facility at the end of the year. Which one of the
following describes the risks to which your family's firm succumbed?
A.forward risk
B.volatility exposure
C.economic exposure
D.transactions exposure
E.translation risk - correct answer ✔C.economic exposure
This morning a cereal maker agreed to pay a farmer $4.40 a bushel for 5,000
bushels of wheat that the farmer will ship tothe factory four months from now.
What is this legally binding agreement called?A.forward contract
B.spot contract
C.swap
D.exchange
E.floating contract - correct answer ✔A.forward contract
Farmer Jones raises several hundred acres of corn and would suffer a
significant loss should the price of corn decline at harvest time. Which one of
the following would he be doing if he purchased financial securities to offset
this price risk?
A.abating
B.deriving
C.hedging
D.forwarding
E.manipulating - correct answer ✔C.hedging
The value of a stock option is dependent upon the value of the underlying
stock. Thus, a stock option is a:
A.forward agreement.
B.derivative security.
C.mezzanine asset.
D.contingent security.
E.junior security. - correct answer ✔B.derivative security.
Farmer Mac owns a large orange grove in Florida. The value of his business
is directly related to the price of oranges. Which one of the following is a
graphical representation of this price-value relationship?A.exchange line
B.net present value profile
C.risk profile
D.market lineE.return grid - correct answer ✔C.risk profile
, Farmer Ted planted 200 acres in wheat this year. The weather has been
perfect and he expects to harvest a record crop within the next two weeks. At
present, he has no storage facilities and therefore must sell his crop as soon
as it is harvested. Which one of the following risks is he facing because he
must sell his crop at whatever the market price is at harvest time?
A.futures risk
B.volatility exposure
C.surplus risk
D.transactions exposure
E.translation exposure - correct answer ✔D.transactions exposure
For years, your family has operated a business that produces lawn mowers.
Over the years, the industry has progressed and new mass production
techniques have been developed. However, your firm cannot afford this new
technology, nor can you compete against those firms that can. Thus, the
family has decided to close its facility at the end of the year. Which one of the
following describes the risks to which your family's firm succumbed?
A.forward risk
B.volatility exposure
C.economic exposure
D.transactions exposure
E.translation risk - correct answer ✔C.economic exposure
This morning a cereal maker agreed to pay a farmer $4.40 a bushel for 5,000
bushels of wheat that the farmer will ship tothe factory four months from now.
What is this legally binding agreement called?A.forward contract
B.spot contract
C.swap
D.exchange
E.floating contract - correct answer ✔A.forward contract
