CEO's Definition of Risk and Reasons for Risk Management in Companies
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Questions and Answers

Which party in an options contract has the right to trade the underlying asset?

  • Seller of the option
  • Option writer
  • Buyer of the option (correct)
  • Both parties
  • What is the price determined by both parties in an options contract known as?

  • Benchmark rate
  • Premium
  • Interest rate
  • Strike price (correct)
  • In a futures contract, who holds the obligation to buy/sell the underlying asset at the contract's expiration?

  • Option writer
  • Both parties
  • Seller of the futures contract
  • Buyer of the futures contract (correct)
  • What is a primary reason for managing risk in investment portfolios?

    <p>To diversify portfolios</p> Signup and view all the answers

    What type of risk is considered the most relevant by investors when managing their portfolios?

    <p>Systematic risk</p> Signup and view all the answers

    In capital budgeting, what is the primary focus of decision-making?

    <p>Long-term investment opportunities</p> Signup and view all the answers

    What happens if a buyer of an options contract decides not to exercise their right to trade the underlying assets?

    <p>They can pass on the exercise right after paying the premium</p> Signup and view all the answers

    What distinguishes an option contract from a futures contract?

    <p>'Option contracts have fixed cash flows, while futures have variable cash flows'</p> Signup and view all the answers

    What is the role of an option writer in an options contract?

    <p>Selling option contracts and receiving premiums</p> Signup and view all the answers

    When managing risk in their portfolios, what type of risk do corporate executives often express concern about?

    <p>Credit risk</p> Signup and view all the answers

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