5. Financial Risk Management Flashcards Preview

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Flashcards in 5. Financial Risk Management Deck (20)
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1

Name three types of exposure that derivatives can cover?

1. Interest rates

2. Foreign exchange rates

3. Commodities

2

Name five factors that will influence the implementation of financial risk management?

1. Financial systems & internal controls

2. Reporting tools

3. Cash budgets

4. Credit insurance

5. Due diligence

3

Mitigation of ... risk is the payment of debts when they fall due. This can be achieved by using a cash budget.

Liquidity

4

What are some of the factors that the rate of interest depends on?

1. Amount

2. Term

3. Inflation

4. Risk

5

What are the benefits of good financial risk management:

1. Improves financial planning

2. Facilitates robust investment decisions

3. Informs hedging decisions

4. Encourages monitoring of markets

6

What does a company need to know before they borrow money?

1. How interest rate was determined

2. Interest rate at commencement

3. Nature of interest rate (fixed or variable)

4. Duration of payment

7

... is the risk to each party of a contract that the counterparty will not live up to its contractual obligations.

Counterparty risk

8

... is the mitigation action for credit risk.

Credit insurance

9

... is the financial loss suffered due to the default of a borrower or counterparty under a contract.

Credit risk

10

... focuses on the possible impact which fluctuations in exchange rates may have on the foreign exchange holdings or the commitments payable in foreign exchange.

Currency risk

11

... ratio is the relationship between current assets and current liabilities.

Current

12

... is the probability of the event of default.

Default risk

13

... are financial products derived from some other existing product. Examples include options, futures and swaps.

Derivatives

14

... generally refers to the care a reasonable person should take before entering into an agreement or a transaction with another party.

Due diligence

15

... relates to the uncertainty surrounding the payment of future amounts.

Exposure risk

16

... is the exposure of an enterprise to adverse events that erode profitability and in extreme situations bring about business collapse.

Financial risk

17

... risk focuses on the possible risks that arise when a business pursues opportunities abroad.

Foreign investment

18

... is the risk that a business will be unable to obtain funds to meet its obligations as they fall due either by increasing liabilities or by converting assets into money without loss.

Liquidity risk

19

... ratio is a liquidity indicator that further refines the current ratio by measuring the amount of the liquid current assets available to cover current liabilities.

Quick

20

... relates to the uncertainty over the likely recovery.

Recovery risk