CPFM Financial Risk Management 3

Question 1

Credit risk is best defined as the risk that:

Accepted Answer

A counterparty fails to meet its contractual obligations

Answer

Interest rates will rise

Answer

A currency will devalue

Answer

Markets become illiquid

Question 2

Which of the following best describes liquidity risk?

Accepted Answer

The risk of being unable to sell an asset or meet obligations without significant loss

Answer

The risk of a credit downgrade

Answer

The risk of interest rate changes

Answer

The risk of currency conversion

Question 3

A bond's duration measures its sensitivity to changes in:

Accepted Answer

Interest rates

Answer

Exchange rates

Answer

Commodity prices

Answer

Equity volatility

Question 4

Stress testing differs from VaR primarily because it:

Accepted Answer

Examines impact of extreme, often hypothetical scenarios

Answer

Uses only normal market conditions

Answer

Requires no assumptions

Answer

Ignores tail events

Question 5

The risk that a firm cannot roll over its short-term debt as it matures is called:

Accepted Answer

Refinancing (funding) risk

Answer

Basis risk

Answer

Translation risk

Answer

Settlement risk

Question 6

Which technique transfers risk to a third party in exchange for a premium?

Accepted Answer

Insurance

Answer

Diversification

Answer

Hedging with internal reserves

Answer

Risk avoidance

Question 7

Basis risk in a hedge arises when:

Accepted Answer

The hedging instrument and the underlying exposure do not move perfectly together

Answer

The hedge fully eliminates all risk

Answer

The counterparty defaults

Answer

Interest rates remain unchanged