Essay about Intoduction to Frm

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Module 1 Introduction to financial risk management (FRM)

Financial Risk Management
Module 1 Introduction to financial risk management
Question 1
In 2009 which organisation posted the biggest corporate loss in US history and in the same month announced staff bonuses in excess of USD 450 million?
a.
b.
c.
d.

American International Group (AIG).
Lehman Brothers.
General Motors.
Merrill Lynch.

Question 2
The Gig, an Australian heavy metal band, has decided to let its fans invest in the music industry and guaranteed that for every $100 invested in The Gig Music Fund they will get a monthly dividend of $12.00.
After six months $20 million has been invested and the depositors have all received $12.00 a month.
A spokesman
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a.
b.
c.
d.

Minimise the treasurer’s risks by taking out full cover.
Minimise the treasurer’s risks by taking out no cover at all.
Actively manage the foreign exchange exposure.
Adopt a neutral 50 per cent cover.

Question 4
Sea Mines Australia Ltd currently exports the bulk of its bauxite production to a Chinese manufacturer of aluminium products under a fixed AUD pricing arrangement with settlement terms of 180 days after delivery.
Given that movements in the AUD and commodity prices have traditionally been highly correlated, what is the primary risk faced by Sea Mines Australia in respect of these exports?
a.
b.
c.
d.

Liquidity risk.
Commodity price risk.
Interest rate risk.
Credit risk.

Question 5
Air Rock, a regional Australian airline, receives 80 per cent of its revenues in AUDs and the remainder in USDs.
The airline pilots have been on strike for three months but Air Rock has an obligation to continue to make lease payments on its fleet. What is the primary risk faced by Air Rock Airlines?
a.
b.
c.
d.

Liquidity risk.
Commodity price risk.
Interest rate risk.
Credit risk.

Question 6
CPT Imports Pty Ltd pays customs duty in AUDs based on the AUD value of the USD invoice when the goods are imported. What is CPT Imports Pty Ltd’s exposure?
a.
b.
c.
d.

FX transaction risk.
FX translation risk.
FX competitive risk.
Customs duty is paid in AUDs, hence there is no FX risk.

Question 7
Which risk below is

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