Module 5: Risk Management

Question 1

A foreigner invested some of his dollars in the Philippines, what risk(s) did he take?

A. Foreign currency risk
B. Sovereign risk
C. Liquidity risk
D. Market risk

Answer 1

A. Foreign currency risk

Question 2

Which of the following statements about risk is LEAST accurate?

A. Interest rate risk is the risk that an investment value will change due to changes in absolute level of interest rates
B. Liquidity risk starts from the lack of marketability of an investment that cannot be bought or sold quickly enough to prevent or minimize a loss
C. Reinvestment risk is a concern when interest rates are falling
D. Currency risk arises from the change in price of one currency against the other

Answer 2

C. Reinvestment risk is a concern when interest rates are falling

Reinvestment risk – risk that future proceeds will have to be reinvested at lower interest rates.

Question 3

Which of the following are components of Value at Risk (VAR) statistics?

A. Time Period
B. Confidence Level
C. Loss Amount (or loss percentage)
D. All of the above

Answer 3

D. All of the above

Question 4

It is the normal risk that a business has the opportunity for gains and losses:

A. Opportunity Risk
B. Favorable Risk
C. Business Risk
D. All of the above

Answer 4

C. Business Risk

Question 5

Which of the following is/are a method/s to identify the exposure of the organization to risk and uncertainty:

A. Flowcharts and dependency analysis
B. Workshops and brainstorming
C. Inspections and audits
D. All of the above

Answer 5

D. All of the above

Question 6

Which of the following risks should be considered by a local investor when investing in peso denominated LTNCDs?

I. Price
II. Credit
III. Liquidity
IV. Sovereign/Political

A. I and II
B. II, III and IV
C. I, II and III
D. All of the above

Answer 6

C. I, II and III

LTNCD- Long Term Negotiable Certificate of Deposits; issued by banks; insured by PDIC