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BEC > Financial Risk Management > Flashcards

Financial Risk Management Flashcards

1
Q

What type of behavior is an increase in the level of risk that does not result in an increase in management’s required rate of return?

A

Risk indifferent behavior

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2
Q

What type of behavior is an increase in the level of risk that results in an increase in management’s required rate of return?

A

Risk-averse behavior

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3
Q

What type of behavior is the increase in the level of risk that results in a decrease in management’s required rate of return?

A

Risk-seeking behavior

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4
Q

What is the process of selecting investments of different risks?

A

Diversification

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5
Q

Can all risks be managed through diversification?

A

No

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6
Q

What are other names for nondiversifiable risk?

A

Market or systematic

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7
Q

What type of risk is the value as a result of operating within an economy?

A

Market risk

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8
Q

What type of risk is when debtor may not repay the principal or interest due?

A

Default risk

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9
Q

What compensates investors & creditors for assumed risk?

A

Return

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10
Q

What is the rate of interest charged before any adjustment for compounding and shown in the agreement?

A

Stated interest rate

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11
Q

Computation for Effective interest rate

A

Interest paid / net proceeds

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12
Q

Computation for Annual Percentage Rate

A

Effective periodic interest rate x number of periods in year or annual interest paid / net proceeds

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13
Q

Computation of Effective Annual Percentage Rate Calculation

A

(1+(Interest / compounding periods per year))^p-1

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14
Q

Simple Interest Computation

A

Principal x Interest rate x number of periods

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15
Q

Compound Interest Calculation

A

Principal x (1+rate)^number of years

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16
Q

What are the risk factors?

A

Trade & financial

17
Q

What are the risk exposure categories?

A

Transaction, economic, and translation

18
Q

What are the trade related factors?

A

Relative inflation rates, relative income levels, and government controls

19
Q

What are the financial factors?

A

Relative interest rates & capital flow

20
Q

What is the process of measuring specific Net Transaction Exposure?

A

Selective hedging, identifying net transaction exposure, and adjusting invoice policies

21
Q

What does hedging do?

A

Reduces risk

22
Q

What type of hedge is denominated in standard amounts and tend to be used for smaller transactions?

A

Future hedges

23
Q

What is transfer pricing used for?

A

Minimization of local taxation

24
Q

What type of exposure is defined as the potential that an organization could suffer economic loss or experience economic gain upon settlement of individual transactions as a result of changes in the exchange rates?

A

Transaction Exposure

25
Q

What type of exposure is defined as the potential that the present value of an organization’s cash flows could increase or decrease as a result of changes in the exchange rates?

A

Economic Exposure

26
Q

What type of exposure is defined as the risk that assets, liabilities, equity, or income of a consolidated organization that includes foreign subsidiaries will change as a result of changes in exchange rates?

A

Translation Exposure

27
Q

What are the steps to transaction exposure?

A

Project foreign currency net inflows/outflows

Estimate the variability associated with the foreign currency

28
Q

What COBIT domain consist of providing direction to solution and service delivery?

A

Plan and Organize

29
Q

What type of COBIT domain consist of providing solutions for IT needs?

A

Acquire and Implement

30
Q

What type of COBIT domain consist of providing IT services to users?

A

Deliver and Support

31
Q

What type of COBIT domain consist of ensuring that the direction provided in the planning and organizing steps are followed?

A

Monitor and Evaluate

BEC (32 decks)

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