Quiz on Financial Risk Management

Multiple Choice Questions

1. What is the primary goal of Financial Risk Management? A. To maximize profits B. To minimize losses C. To increase risk D. To reduce risk

2. What is the practice of hedging? A. Selling a security to reduce risk B. Buying a security to reduce risk C. Selling a security to increase risk D. Buying a security to increase risk

3. What is the primary purpose of diversification? A. To increase profits B. To reduce losses C. To reduce risk D. To increase risk

4. What type of risk is associated with changes in the value of a security due to market conditions? A. Systematic risk B. Unsystematic risk C. Market risk D. Liquidity risk

True or False Questions

1. Financial Risk Management is the practice of taking on more risk in order to maximize profits. A. True B. False

2. Risk management is only important for large companies. A. True B. False

3. Diversification is the practice of investing in a variety of assets to reduce risk. A. True B. False

4. Hedging is the practice of investing in a variety of assets to increase risk. A. True B. False

Fill-in-the-Blank Questions

1. The practice of taking on more risk in order to maximize profits is known as ___________.

Answer: Risk-taking

1. The practice of investing in a variety of assets to reduce risk is known as ___________.

Answer: Diversification

1. The practice of buying or selling a security to reduce risk is known as ___________.

Answer: Hedging

1. The risk associated with changes in the value of a security due to market conditions is known as ___________ risk.

Answer: Systematic

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Financial Risk Management Practice Sheet

Questions

1. What is financial risk management? A. The process of assessing and managing financial risks. B. The process of investing in stocks and bonds. C. The process of predicting stock prices. D. The process of buying and selling stocks.

2. What are the two main types of financial risk? A. Market risk and credit risk. B. Liquidity risk and operational risk. C. Interest rate risk and inflation risk. D. Volatility risk and liquidity risk.

3. What is an example of market risk? A. Changes in the value of a company's assets. B. Changes in the cost of borrowing money. C. Changes in the price of a company's stock. D. Changes in the interest rate of a loan.

4. What is an example of credit risk? A. Defaulting on a loan or other debt obligation. B. Changes in the value of a company's assets. C. Changes in the cost of borrowing money. D. Changes in the price of a company's stock.

5. What is an example of liquidity risk? A. Defaulting on a loan or other debt obligation. B. Changes in the value of a company's assets. C. Difficulty in selling assets quickly. D. Changes in the cost of borrowing money.

6. What is an example of operational risk? A. Defaulting on a loan or other debt obligation. B. Changes in the value of a company's assets. C. Difficulty in selling assets quickly. D. Losses resulting from inadequate systems, processes, or human error.

Answers Key

1. A
2. A
3. C
4. A
5. C
6. D