ERAC Energy Risk Management Principles

Question 1

What is the primary objective of energy risk management?

Accepted Answer

Identify and mitigate energy risks

Answer

Maximize energy consumption

Answer

Ignore market fluctuations

Answer

Reduce energy production

Question 2

Which financial instrument is commonly used to hedge against energy price risk?

Accepted Answer

Futures contracts

Answer

Options contracts

Answer

Insurance policies

Answer

Bonds

Question 3

What is basis risk in energy trading?

Accepted Answer

Risk of price mismatch between hedge and exposure

Answer

Risk from equipment failure

Answer

Risk from regulatory changes

Answer

Risk of physical damage

Question 4

Which risk involves the possibility of counterparty default in energy contracts?

Accepted Answer

Credit risk

Answer

Market risk

Answer

Operational risk

Answer

Liquidity risk

Question 5

What is the purpose of Value at Risk (VaR) in energy risk management?

Accepted Answer

To estimate potential losses

Answer

To maximize profits

Answer

To increase trading volume

Answer

To ignore market risk

Question 6

Which type of risk relates to changes in laws and regulations affecting the energy market?

Accepted Answer

Regulatory risk

Answer

Credit risk

Answer

Market risk

Answer

Operational risk

Question 7

What is meant by 'hedging' in energy risk management?

Accepted Answer

Offsetting risk exposure

Answer

Speculating on prices

Answer

Increasing risk exposure

Answer

Ignoring risk factors

Question 8

Which energy risk involves disruptions caused by equipment failure or natural disasters?

Accepted Answer

Operational risk

Answer

Credit risk

Answer

Market risk

Answer

Liquidity risk

Question 9

Liquidity risk in energy markets refers to:

Accepted Answer

Inability to trade assets quickly

Answer

Risk of counterparty default

Answer

Risk of price fluctuations

Answer

Risk of equipment failure