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Contents

1 FINANCIAL RISK MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . 2

1.1 FINANCIAL RISK MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
 1. FINANCIAL RISK

NARAYAN CHANGDER
MANAGEMENT

1.1 FINANCIAL RISK MANAGEMENT

1. The first step in a risk management pro- C. Debt Financing
gram is to D. Indenture
A. measure the frequency and severity of
potential losses. 5. are the major source of long-term debt
financing for most corporations.
B. monitor the results of the program.
A. Loans
C. identify the risks and potential losses.
B. Common Stock
D. evaluate the alternatives.
C. Commercial Paper
2. The types of risks that can be insured are
D. Bonds
risks
A. Pure 6. insurance covers losses resulting from
damage to people or property when the
B. Speculative
insured party is judged responsible.
C. Investment
A. Liability
D. Business
B. Key Person
3. Insurance is a risk management method C. Health
A. Risk Avoidance D. Disability
B. Risk Retention
7. The recommended amount of Emergency
C. Risk Transfer Fund for married couples (no children yet)
D. Risk Mitigation is

4. is the use of common stock and/or re- A. 9x monthly withdrawals

tained earnings to raise long-term funding. B. 9x monthly income
A. Equity financing C. 12x monthly withdrawals
B. Leverage D. 12x monthly income

1. C 2. A 3. C 4. A 5. D 6. A 7. A 8. A
1.1 FINANCIAL RISK MANAGEMENT
8. How may a company transfer risk to an-
other firm?
A. Insurance
B. Risk Avoidance
C. Risk Control
D. Investing
9. The three general categories of responsi-
bilities of the financial manager are
A. cash-flow management, financial con-
trol, and financial planning.
B. financial planning, accounting, and
government tax reporting.
C. government tax reporting, cash-flow
management, and financial control.
D. accounting, cash-flow management,
and government tax reporting.
10. The principle that safer investments tend
to offer lower returns while riskier invest-
ments tend to offer higher returns is called
A. the risky principle.
B. cash flow decision.
C. risk-return relationship.
D. the safety factor.
11. is long-term borrowing from sources
outside of the company.
A. Leverage
B. Outside Borrowing
C. Equity Financing
D. Debt Financing
12. Which of the following best describes
health insurance?
A. insurance underwritten for a group as
a whole rather than each individual in it
9. A 10. C 11. D
3
B. insurance covering losses resulting
from physical damage to or loss of the in-
sured’s real estate or personal property
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C. coverage provided by a firm to employ-
ees for medical expenses, loss of wages,
and rehabilitation costs resulting from job-
related injuries or disease
D. insurance covering losses resulting
from medical and hospital expenses as
well as income lost from injury or disease
13. The correct order of the financial planning
pyramid
A. Cash flow, wealth distribution, invest-
ing, risk management, retirement
B. Cash flow, risk management, invest-
ing, retirement, wealth distribution
C. Cash flow, retirement, wealth distribu-
tion, risk, investing
D. Cashflow, investing, retirement,
wealth distribution, risk management
14. is a short-term security, or note, con-
taining a borrower’s promise to pay.
A. A trade draft
B. Equity financing
C. Commercial paper
D. Leverage
15. Death protection with a certain period of
time, no cash value, the simplest and
most affordable is the characteristic of life
insurance
A. Whole life
B. Endowment
C. Unit link
D. Term life
12. D 13. B 14. C 15. D