FIN402_CHAP16
E - Answer 1. Derivatives activities in end users are primarily conducted by
a. the human resources group
b. the sales staff
c. the chief financial officer
d. the board of directors
e. the treasury group
C - Answer 2. Which of the following best describes a company that practices enterprise
risk management?
a. interest rate risk and currency risk would be managed in unison
b. a single department to manage risk
c. it would manage insurance-related risks along with financial risk
d. credit risk would be managed the same way as market risk
e. operational risk would be managed
b - Answer 3. The front office refers to
a. the compliance office
b. the traders who engage in derivatives transactions
c. legal counsel
d. the risk management function
e. senior management
E - Answer 4. FAS 133 defines effective hedging as
a. a hedge with no basis risk
b. a correctly priced hedge
c. a perfect hedge
d. a hedge that reduces 80 to 125 percent of the risk
e. none of the above
A - Answer 5. In which of the following activities is hedge accounting prohibited?
a. hedging an overall portfolio as opposed to an individual transaction
b. using short calls to protect a long asset
c. using long puts to protect an asset
d. hedging a long position with a short futures
e. hedging a swap with a swaption
B - Answer 6. Which of the following organizations recommends best practices for the
investment management industry?
a. PRMIA
b. Risk Standards Working Group
c. GARP
d. G-30
e. Financial Accounting Standards Board
, C - Answer 7. Which of the following activities does senior management not do?
a. ensure that personnel are qualified
b. ensure that controls are in place
c. execute hedge transactions
d. establish policies
e. define roles and responsibilities
D - Answer 8. The primary distinction between FAS 133 and IAS 39 is
a. IAS 39 does not permit hedge accounting
b. IAS 39 was adopted earlier than FAS 133
c. IAS 39 applies only to publicly traded corporations
d. IAS 39 applies to all financial assets and liabilities, not just derivatives
e. none of the above
E - Answer 9. Metalgesellschaft lost about $1.3 billion doing what?
a. hedging short-term commitments with long-term options
b. using crude oil futures options to hedge crude oil futures
c. trading futures spreads on crude oil
d. hedging fixed rate oil price commitments with swaptions
e. none of the above
C - Answer 10. "Independent risk management" means which of the following?
a. that risk management of a firm is independent of its overall corporate policy decisions
b. that the risk management function is provided by an outside consulting firm
c. that the risk manager cannot be influenced by the traders
d. that the risk manager is independent of the firm's senior managers
e. none of the above
E - Answer 11. End users are all of the following types of organizations except?
a. investment funds
b. non-financial corporations
c. governments
d. financial institutions
e. none of the above
B - Answer 12. What is the primary activity of a firm's front office?
a. risk management
b. trading
c. pricing derivative products
d. auditing
e. none of the above
D - Answer 13. Orange County lost $1.6 billion doing what?
a. betting that interest rates would remain stable
b. buying Treasury bond futures
E - Answer 1. Derivatives activities in end users are primarily conducted by
a. the human resources group
b. the sales staff
c. the chief financial officer
d. the board of directors
e. the treasury group
C - Answer 2. Which of the following best describes a company that practices enterprise
risk management?
a. interest rate risk and currency risk would be managed in unison
b. a single department to manage risk
c. it would manage insurance-related risks along with financial risk
d. credit risk would be managed the same way as market risk
e. operational risk would be managed
b - Answer 3. The front office refers to
a. the compliance office
b. the traders who engage in derivatives transactions
c. legal counsel
d. the risk management function
e. senior management
E - Answer 4. FAS 133 defines effective hedging as
a. a hedge with no basis risk
b. a correctly priced hedge
c. a perfect hedge
d. a hedge that reduces 80 to 125 percent of the risk
e. none of the above
A - Answer 5. In which of the following activities is hedge accounting prohibited?
a. hedging an overall portfolio as opposed to an individual transaction
b. using short calls to protect a long asset
c. using long puts to protect an asset
d. hedging a long position with a short futures
e. hedging a swap with a swaption
B - Answer 6. Which of the following organizations recommends best practices for the
investment management industry?
a. PRMIA
b. Risk Standards Working Group
c. GARP
d. G-30
e. Financial Accounting Standards Board
, C - Answer 7. Which of the following activities does senior management not do?
a. ensure that personnel are qualified
b. ensure that controls are in place
c. execute hedge transactions
d. establish policies
e. define roles and responsibilities
D - Answer 8. The primary distinction between FAS 133 and IAS 39 is
a. IAS 39 does not permit hedge accounting
b. IAS 39 was adopted earlier than FAS 133
c. IAS 39 applies only to publicly traded corporations
d. IAS 39 applies to all financial assets and liabilities, not just derivatives
e. none of the above
E - Answer 9. Metalgesellschaft lost about $1.3 billion doing what?
a. hedging short-term commitments with long-term options
b. using crude oil futures options to hedge crude oil futures
c. trading futures spreads on crude oil
d. hedging fixed rate oil price commitments with swaptions
e. none of the above
C - Answer 10. "Independent risk management" means which of the following?
a. that risk management of a firm is independent of its overall corporate policy decisions
b. that the risk management function is provided by an outside consulting firm
c. that the risk manager cannot be influenced by the traders
d. that the risk manager is independent of the firm's senior managers
e. none of the above
E - Answer 11. End users are all of the following types of organizations except?
a. investment funds
b. non-financial corporations
c. governments
d. financial institutions
e. none of the above
B - Answer 12. What is the primary activity of a firm's front office?
a. risk management
b. trading
c. pricing derivative products
d. auditing
e. none of the above
D - Answer 13. Orange County lost $1.6 billion doing what?
a. betting that interest rates would remain stable
b. buying Treasury bond futures
