Managing Financial Risk Multiple Choice

1. Using options and futures to reduce risk is called ______.
a) hedging
b) betting
c) gambling

2. To reduce exposure to any single asset, companies use ______.
a) centralisation
b) isolation
c) diversification

3. The risk of a borrower defaulting on their loan is called ______.
a) market risk
b) liquidity risk
c) credit risk

4. When prices in the market fluctuate rapidly, this is known as ______.
a) stability
b) volatility
c) liquidity

5. The ability to convert assets into cash quickly is known as ______.
a) liquidity
b) profitability
c) credit

6. ______ are financial contracts that derive their value from underlying assets.
a) Equities
b) Debts
c) Derivatives

7. Companies must ensure they meet all legal obligations through ______.
a) compliance
b) volatility
c) diversification

8. ______ involves spreading investments across different sectors to reduce risk.
a) Consolidation
b) Diversification
c) Specialisation