ARM 54 Assignment 4(operational, financial, and
strategic risk)- Questions and Answers
Hedging Correct Ans-A financial transaction in which one asset is held to offset the risk
associated with another asset.
Systematic Risk Correct Ans-Risk that is common to all securities of the same general class
and that therefore cannot be eliminated by diversification
interest rate risk Correct Ans-the risk that a security's future value will decline because of
changes in interest rates
swap Correct Ans-An agreement between two organizations to exchange payments based
on changes in the value of an asset, yield, or index over a specific period.
cash matching Correct Ans-The process of matching an investment's maturity value with
the amount of expected loss payments
zero coupon bond Correct Ans-A corporate bond that does not pay periodic interest
income
Reinvestment Risk Correct Ans-the risk that the rate at which periodic interest payments
can be reinvested over the life of the investment will be unfavorable
, ARM 54 Assignment 4(operational, financial, and
strategic risk)- Questions and Answers
Commodity price risk Correct Ans-The risk associated with a change in the prices of
commodities that are necessary to an organization's operations.
cash flow Correct Ans-Cash inflow minus cash outflow
commodity futures contract Correct Ans-A contract either to make or to accept delivery of
a specified quantity of a commodity on a given date.
equity price risk Correct Ans-The risk that changes in the price of a stock or another
security will increase or decrease.
call option Correct Ans-An option to buy a set amount of the underlying security at any
time within a specified period
put option Correct Ans-An option giving the holder the right to sell a set amount of the
underlying security at any time within a specified period.
Price Risk Correct Ans-The potential for a change in revenue or cost because of an increase
or a decrease in the price of a product or an input
Basel II categories of operational risk Correct Ans--people
-process
strategic risk)- Questions and Answers
Hedging Correct Ans-A financial transaction in which one asset is held to offset the risk
associated with another asset.
Systematic Risk Correct Ans-Risk that is common to all securities of the same general class
and that therefore cannot be eliminated by diversification
interest rate risk Correct Ans-the risk that a security's future value will decline because of
changes in interest rates
swap Correct Ans-An agreement between two organizations to exchange payments based
on changes in the value of an asset, yield, or index over a specific period.
cash matching Correct Ans-The process of matching an investment's maturity value with
the amount of expected loss payments
zero coupon bond Correct Ans-A corporate bond that does not pay periodic interest
income
Reinvestment Risk Correct Ans-the risk that the rate at which periodic interest payments
can be reinvested over the life of the investment will be unfavorable
, ARM 54 Assignment 4(operational, financial, and
strategic risk)- Questions and Answers
Commodity price risk Correct Ans-The risk associated with a change in the prices of
commodities that are necessary to an organization's operations.
cash flow Correct Ans-Cash inflow minus cash outflow
commodity futures contract Correct Ans-A contract either to make or to accept delivery of
a specified quantity of a commodity on a given date.
equity price risk Correct Ans-The risk that changes in the price of a stock or another
security will increase or decrease.
call option Correct Ans-An option to buy a set amount of the underlying security at any
time within a specified period
put option Correct Ans-An option giving the holder the right to sell a set amount of the
underlying security at any time within a specified period.
Price Risk Correct Ans-The potential for a change in revenue or cost because of an increase
or a decrease in the price of a product or an input
Basel II categories of operational risk Correct Ans--people
-process
