CTP Financial Risk Management 4

Question 1

A U.S. company has a EUR-denominated subsidiary. To hedge the translation exposure of the subsidiary's equity, it should:

Accepted Answer

Borrow in EUR to create a EUR liability that offsets the EUR-denominated equity

Answer

Issuing EUR-denominated debt creates a natural hedge: translation losses on the subsidiary's equity are offset by translation gains on the EUR liability.

Question 2

The 'Greeks' in options pricing include Delta, Gamma, Theta, and Vega. A long call option position will experience time value decay as expiration approaches, which is reflected by:

Accepted Answer

A negative Theta

Answer

Theta represents time decay; a long option position has negative Theta because option value erodes as time passes, all else equal.

Question 3

Enterprise Risk Management (ERM) differs from traditional siloed risk management primarily because ERM:

Accepted Answer

Considers all risks holistically across the organization and their interdependencies

Answer

ERM integrates all risk categories—financial, operational, strategic, and reputational—into a unified framework that considers how risks interact across the enterprise.

Question 4

A commodity producer uses a collar strategy to hedge price risk. Which combination of instruments constitutes a zero-cost collar?

Accepted Answer

Buy a put and sell a call, with premiums that offset each other

Answer

A zero-cost collar involves buying a protective put and selling a call at a higher strike; the call premium received offsets the put premium paid.

Question 5

Under the COSO ERM framework, 'risk appetite' is best defined as:

Accepted Answer

The amount of risk an organization is willing to accept in pursuit of its objectives

Answer

Risk appetite is the broad-based amount of risk a company accepts in pursuit of value, set by the board and guiding strategic decision-making.

Certified Treasury Professional Exam Practice Test

Certified Treasury Professional Exam Practice Test

CTP Financial Risk Management 4