Financial Risk Management and Derivatives MCQs

Welcome to our comprehensive collection of Multiple Choice Questions (MCQs) on Financial Risk Management and Derivatives, a fundamental topic in the field of IC 89 Management Accounting. Whether you're preparing for competitive exams, honing your problem-solving skills, or simply looking to enhance your abilities in this field, our Financial Risk Management and Derivatives MCQs are designed to help you grasp the core concepts and excel in solving problems.

In this section, you'll find a wide range of Financial Risk Management and Derivatives mcq questions that explore various aspects of Financial Risk Management and Derivatives problems. Each MCQ is crafted to challenge your understanding of Financial Risk Management and Derivatives principles, enabling you to refine your problem-solving techniques. Whether you're a student aiming to ace IC 89 Management Accounting tests, a job seeker preparing for interviews, or someone simply interested in sharpening their skills, our Financial Risk Management and Derivatives MCQs are your pathway to success in mastering this essential IC 89 Management Accounting topic.

Note: Each of the following question comes with multiple answer choices. Select the most appropriate option and test your understanding of Financial Risk Management and Derivatives. You can click on an option to test your knowledge before viewing the solution for a MCQ. Happy learning!

So, are you ready to put your Financial Risk Management and Derivatives knowledge to the test? Let's get started with our carefully curated MCQs!

Financial Risk Management and Derivatives MCQs | Page 1 of 7

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Discuss
Answer: (c).To reduce the firm's exposure to future financial risks Explanation:Financial Risk Management aims to identify, analyze, evaluate, and manage current and possible future financial risks with the objective of reducing the firm's exposure to these risks and stabilizing its balance sheet position.
Q2.
Which of the following is NOT a type of financial derivative?
Discuss
Answer: (c).Equity Shares Explanation:Financial derivatives include Future Contracts, Forward Contracts, Options, and Swaps. Equity Shares are not derivatives; they represent ownership in a company.
Discuss
Answer: (c).A contract with no intrinsic value itself, deriving its value from an underlying entity Explanation:A derivative is a financial instrument or security that derives its value from the performance of underlying entities, such as assets, interest rates, currency exchange rates, or indexes.
Discuss
Answer: (d).To hedge risks and for speculative purposes Explanation:Derivatives are used in financial risk management for hedging risks as well as for speculative purposes to manage and mitigate exposure to financial risks.
Q5.
Which of the following is NOT considered a derivative transaction?
Discuss
Answer: (c).Corporate Bonds Explanation:Derivative transactions include various financial contracts such as structured debt and deposits, swaps, futures, options, caps, floors, and forwards. Corporate Bonds are not derivatives; they represent debt instruments.
Discuss
Answer: (c).To avoid or reduce financial risks Explanation:Derivatives are used by those who want to avoid or reduce financial risks, providing a mechanism to deal with others willing to take risks for potential rewards.
Discuss
Answer: (c).Managing interest rate uncertainties Explanation:A Forward Rate Agreement (FRA) is a contract used to manage interest rate uncertainties. It allows the buyer to pay a fixed rate of interest six months after purchase, helping to stabilize earnings in the face of potential interest rate changes.
Q8.
What is another term for Financial Derivatives?
Discuss
Answer: (b).Deferred-delivery instruments Explanation:Financial Derivatives are also known as 'deferred-delivery or deferred-payment instruments,' resembling securitized assets with obligations of counterparties but without obligations of the original issuer of the underlying asset or security.
Discuss
Answer: (c).High liquidity and financial engineering for risk management Explanation:Exchange-traded derivatives are characterized by high liquidity and provide a mechanism for financial engineering for risk management with low transaction costs.
Discuss
Answer: (a).Embedded Derivatives and Commodity Derivatives Explanation:Derivatives are classified based on underlying assets as Embedded Derivatives and Commodity Derivatives, each associated with different risks and marketplaces.
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